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TELEFLEX INC - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                    .
Commission file number 1-5353
 
TELEFLEX INCORPORATED
(Exact name of registrant as specified in its charter)
 
Delaware
 
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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  ¨

 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
 
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
¨
 (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
The registrant had 41,413,981 shares of common stock, $1.00 par value, outstanding as of October 20, 2014.





TELEFLEX INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 28, 2014
TABLE OF CONTENTS
 
  
Page
  
 
 
 
 
 
 
Item 1:
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Item 2:
 
  
Item 3:
 
  
Item 4:
 
  
 
 
 
  
 
 
 
 
 
 
Item 1:
 
  
Item 1A:
 
  
Item 2:
 
  
Item 3:
 
  
Item 5:
 
  
Item 6:
 
  
 
 
 
  


1



PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars and shares in thousands, except per share)
Net revenues
$
457,173

 
$
413,796

 
$
1,363,824

 
$
1,245,732

Cost of goods sold
221,007

 
209,804

 
662,411

 
631,730

Gross profit
236,166

 
203,992

 
701,413

 
614,002

Selling, general and administrative expenses
138,252

 
115,228

 
425,392

 
358,431

Research and development expenses
14,871

 
15,638

 
43,803

 
47,169

Restructuring and other impairment charges
1,108

 
7,084

 
16,511

 
29,205

Income from continuing operations before interest, loss on
extingushments of debt and taxes
81,935

 
66,042

 
215,707

 
179,197

Interest expense
17,184

 
13,948

 
48,650

 
42,566

Interest income
(161
)
 
(144
)
 
(494
)
 
(458
)
Loss on extinguishments of debt

 
1,250

 

 
1,250

Income from continuing operations before taxes
64,912

 
50,988

 
167,551

 
135,839

Taxes on income from continuing operations
9,684

 
5,209

 
28,224

 
18,958

Income from continuing operations
55,228

 
45,779

 
139,327

 
116,881

Operating income (loss) from discontinued operations
(247
)
 
38

 
(1,866
)
 
(1,746
)
Taxes (benefit) on income (loss) from discontinued operations
24

 
(991
)
 
(345
)
 
(1,547
)
Income (loss) from discontinued operations
(271
)
 
1,029

 
(1,521
)
 
(199
)
Net income
54,957

 
46,808

 
137,806

 
116,682

Less: Income from continuing operations attributable to
noncontrolling interest
126

 
234

 
765

 
629

Net income attributable to common shareholders
$
54,831

 
$
46,574

 
$
137,041

 
$
116,053

Earnings per share available to common shareholders:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
1.33

 
$
1.11

 
$
3.35

 
$
2.83

Income (loss) from discontinued operations
(0.01
)
 
0.02

 
(0.04
)
 
(0.01
)
Net income
$
1.32

 
$
1.13

 
$
3.31

 
$
2.82

Diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
1.18

 
$
1.05

 
$
3.00

 
$
2.69

Income (loss) from discontinued operations

 
0.03

 
(0.04
)
 
(0.01
)
Net income
$
1.18

 
$
1.08

 
$
2.96

 
$
2.68

Dividends per share
$
0.34

 
$
0.34

 
$
1.02

 
$
1.02

Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
41,399

 
41,132

 
41,347

 
41,087

Diluted
46,628

 
43,264

 
46,256

 
43,246

Amounts attributable to common shareholders:
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
55,102

 
$
45,545

 
$
138,562

 
$
116,252

Income (loss) from discontinued operations, net of tax
(271
)
 
1,029

 
(1,521
)
 
(199
)
Net income
$
54,831

 
$
46,574

 
$
137,041

 
$
116,053


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

2



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
 
(Dollars in thousands)
Net income
 
$
54,957

 
$
46,808

 
$
137,806

 
$
116,682

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation, net of tax of $12,721, $(6,520), $13,252 and $(5,167) for the three and nine month periods, respectively
 
(46,395
)
 
23,530

 
(41,105
)
 
(9,275
)
Pension and other postretirement benefit plans adjustment, net of tax of $(526), $(502), $(1,235) and $(1,525) for the three and nine month periods, respectively
 
1,094

 
779

 
2,336

 
2,735

Derivatives qualifying as hedges, net of tax of $(34), $23, $(117) and $30 for the three and nine month periods, respectively
 
60

 
(40
)
 
203

 
(52
)
Other comprehensive income (loss), net of tax:
 
(45,241
)
 
24,269

 
(38,566
)
 
(6,592
)
Comprehensive income
 
9,716

 
71,077

 
99,240

 
110,090

Less: comprehensive income attributable to non-controlling interest
 
86

 
128

 
793

 
372

Comprehensive income attributable to common shareholders
 
$
9,630

 
$
70,949

 
$
98,447

 
$
109,718


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

3



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 28,
2014
 
December 31,
2013
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
286,382

 
$
431,984

Accounts receivable, net
287,179

 
295,290

Inventories, net
353,227

 
333,621

Prepaid expenses and other current assets
43,283

 
39,810

Prepaid taxes
51,319

 
36,504

Deferred tax assets
48,141

 
52,917

Assets held for sale
7,672

 
10,428

Total current assets
1,077,203

 
1,200,554

Property, plant and equipment, net
347,233

 
325,900

Goodwill
1,352,045

 
1,354,203

Intangible assets, net
1,208,252

 
1,255,597

Investments in affiliates
1,079

 
1,715

Deferred tax assets
1,706

 
943

Other assets
70,274

 
70,095

Total assets
$
4,057,792

 
$
4,209,007

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Current borrowings
$
365,356

 
$
356,287

Accounts payable
71,034

 
71,967

Accrued expenses
77,333

 
74,868

Current portion of contingent consideration
2,957

 
4,131

Payroll and benefit-related liabilities
76,781

 
73,090

Accrued interest
13,848

 
8,725

Income taxes payable
26,735

 
23,821

Other current liabilities
42,272

 
22,231

Total current liabilities
676,316

 
635,120

Long-term borrowings
700,000

 
930,000

Deferred tax liabilities
494,884

 
514,715

Pension and postretirement benefit liabilities
97,007

 
109,498

Noncurrent liability for uncertain tax provisions
56,448

 
55,152

Other liabilities
49,221

 
48,506

Total liabilities
2,073,876

 
2,292,991

Commitments and contingencies

 

Total common shareholders' equity
1,981,728

 
1,913,527

Noncontrolling interest
2,188

 
2,489

Total equity
1,983,916

 
1,916,016

Total liabilities and equity
$
4,057,792

 
$
4,209,007


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


4



TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Cash Flows from Operating Activities of Continuing Operations
 
 
 
Net income
$
137,806

 
$
116,682

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations
1,521

 
199

Depreciation expense
37,409

 
30,735

Amortization expense of intangible assets
47,053

 
37,072

Amortization expense of deferred financing costs and debt discount
11,792

 
11,228

Loss on extinguishments of debt

 
1,250

Impairment of long-lived assets

 
3,354

Changes in contingent consideration
(7,670
)
 
(12,927
)
Stock-based compensation
9,125

 
8,426

Deferred income taxes, net
(2,808
)
 
(1,286
)
Other
(4,310
)
 
(8,223
)
Changes in operating assets and liabilities, net of effects of acquisitions and disposals:
 
 
 
Accounts receivable
2,442

 
(12,395
)
Inventories
(23,084
)
 
(23,576
)
Prepaid expenses and other current assets
(4,087
)
 
(5,420
)
Accounts payable and accrued expenses
14,258

 
1,573

Income taxes receivable and payable, net
(10,649
)
 
(10,820
)
Net cash provided by operating activities from continuing operations
208,798

 
135,872

Cash Flows from Investing Activities of Continuing Operations:
 
 
 
Expenditures for property, plant and equipment
(48,220
)
 
(54,640
)
Proceeds from sale of assets and investments
5,251

 

Payments for businesses and intangibles acquired, net of cash acquired
(28,535
)
 
(40,450
)
Investment in affiliates
(40
)
 
(50
)
Net cash used in investing activities from continuing operations
(71,544
)
 
(95,140
)
Cash Flows from Financing Activities of Continuing Operations:
 
 
 
Proceeds from long-term borrowings
250,000

 
382,000

Repayment of long-term borrowings
(480,009
)
 
(375,000
)
Debt extinguishment, issuance and amendment fees
(3,689
)
 
(6,365
)
Proceeds from share based compensation plans and the related tax impacts
2,936

 
4,740

Payments to noncontrolling interest shareholders
(1,094
)
 
(736
)
Payments for contingent consideration

 
(16,367
)
Dividends
(42,174
)
 
(41,915
)
Net cash used in financing activities from continuing operations
(274,030
)
 
(53,643
)
Cash Flows from Discontinued Operations:
 
 
 
Net cash used in operating activities
(1,946
)
 
(2,167
)
Net cash used in discontinued operations
(1,946
)
 
(2,167
)
Effect of exchange rate changes on cash and cash equivalents
(6,880
)
 
4,476

Net decrease in cash and cash equivalents
(145,602
)
 
(10,602
)
Cash and cash equivalents at the beginning of the period
431,984

 
337,039

Cash and cash equivalents at the end of the period
$
286,382

 
$
326,437


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

5



CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
 
Treasury Stock
 
Noncontrolling
Interest
 
Total
Equity
 
Shares
 
Dollars
 
 
 
 
Shares
 
Dollars
 
 
 
(Dollars and shares in thousands, except per share)
Balance at December 31, 2012
43,102

 
$
43,102

 
$
394,384

 
$
1,601,460

 
$
(132,048
)
 
2,130

 
$
(127,948
)
 
$
2,587

 
$
1,781,537

Net income
 

 
 

 
 

 
116,053

 
 

 
 

 
 

 
629

 
116,682

Cash dividends ($1.02 per share)
 

 
 

 
 

 
(41,915
)
 
 

 
 

 
 

 
 

 
(41,915
)
Other comprehensive loss
 

 
 

 
 

 
 

 
(6,335
)
 
 

 
 

 
(257
)
 
(6,592
)
Distributions to noncontrolling interest shareholders
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(736
)
 
(736
)
Shares issued under compensation plans
116

 
116

 
10,416

 
 

 
 

 
(55
)
 
2,708

 
 

 
13,240

Deferred compensation
 

 
 

 
(9
)
 
 

 
 

 
(1
)
 
55

 
 

 
46

Balance at September 29, 2013
43,218

 
$
43,218

 
$
404,791

 
$
1,675,598

 
$
(138,383
)
 
2,074

 
$
(125,185
)
 
$
2,223

 
$
1,862,262

 
 
 
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
 
Treasury Stock
 
Noncontrolling
Interest
 
Total
Equity
 
Shares
 
Dollars
 
 
 
 
Shares
 
Dollars
 
 
 
(Dollars and shares in thousands, except per share)
Balance at December 31, 2013
43,243

 
$
43,243

 
$
409,338

 
$
1,696,424

 
$
(110,855
)
 
2,064

 
$
(124,623
)
 
$
2,489

 
$
1,916,016

Net income
 
 
 

 
 

 
137,041

 
 

 
 

 
 

 
765

 
137,806

Cash dividends ($1.02 per share)
 

 
 

 
 

 
(42,174
)
 
 

 
 

 
 

 
 

 
(42,174
)
Other comprehensive income (loss)
 

 
 

 
 

 
 

 
(38,594
)
 
 

 
 

 
28

 
(38,566
)
Distributions to noncontrolling interest shareholders
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(1,094
)
 
(1,094
)
Settlements of convertible notes
 
 
 
 
4

 
 

 
 

 
 
 
(4
)
 
 
 

Settlements of note hedges associated with convertible notes
 
 
 
 
(7
)
 
 
 
 
 
 
 
6

 
 

 
(1
)
Shares issued under compensation plans
158

 
158

 
9,001

 
 

 
 

 
(75
)
 
2,684

 
 

 
11,843

Deferred compensation
 

 
 

 
 

 
 

 
 

 
(2
)
 
86

 
 

 
86

Balance at September 28, 2014
43,401

 
$
43,401

 
$
418,336

 
$
1,791,291

 
$
(149,449
)
 
1,987

 
$
(121,851
)
 
$
2,188

 
$
1,983,916

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

6

TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




Note 1 — Basis of presentation
The accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated are prepared on the same basis as the Company's 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 U.S. generally accepted accounting principles (GAAP) and with Rule 10-01 of SEC Regulation S-X, which sets forth the instructions for financial statements included in Form 10-Q. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
In accordance with applicable accounting standards, the accompanying condensed consolidated financial statements do not include all of the information and footnote disclosures that are required to be included in the Company's annual consolidated financial statements. The year-end condensed balance sheet data was derived from the Company's audited financial statements, but, as permitted by Rule 10-01 of SEC Regulation S-X, does not include all disclosures required by GAAP for complete financial statements. Accordingly, the Company's quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.
Effective January 1, 2014, the Company realigned its operating segments to reflect changes in the Company’s internal financial reporting structure. See Note 14 for additional information on the Company’s changed reporting structure.
The Company’s share-based compensation plan permits employees to elect to have shares withheld by the Company to satisfy their minimum statutory tax withholding obligations arising from the exercise or vesting of share-based awards.  The Company then remits, in cash, the withholding taxes to the appropriate tax authorities on behalf of the employee.  For the nine months ended September 28, 2014, the Company has classified such payments as a cash outflow from financing activities under the line item “Proceeds from share-based compensation plans and the related tax impacts” within the condensed consolidated statement of cash flows (i.e., the payment by the Company of the withholding taxes offsets, in part, increases in cash flow from financing activities resulting from the proceeds of the exercise and vesting of share-based awards and tax benefits related to such exercise and vesting).  The Company views the activity as, in effect, a repurchase of the employee’s shares.  The Company’s payments were previously reported as a cash outflow from operating activities; therefore, the Company reclassified the cash outflow for the nine months ended September 29, 2013 of $2.5 million to conform to the presentation for the nine months ended September 28, 2014 within the condensed consolidated statement of cash flows as well as the condensed consolidating statement of cash flows included in Note 15. The Company’s future filings incorporating financial periods prior to 2014 will also reflect this reclassification.
Additionally, the Company made certain revisions to the prior year condensed consolidating statements of cash flows included in the condensed consolidated guarantor financial information included in Note 15 to correct errors identified in the fourth quarter 2013.
As used in this report, the terms “we,” “us,” “our,” “Teleflex” and the “Company” mean Teleflex Incorporated and its subsidiaries, unless the context indicates otherwise. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.
 

7

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

Note 2 — New accounting standards
In April 2014, the Financial Accounting Standards Board (FASB) issued guidance for the reporting of discontinued operations. Under the new guidance, only those disposals of components of an entity that represent a strategic shift that has or will have a major effect on an entity's operations and financial results will be reported as discontinued operations in an entity's financial statements. In addition, the new guidance requires additional disclosures for discontinued operations designed to provide users of financial statements with more information about the assets, liabilities, revenues and expenses of discontinued operations. The new guidance also requires disclosures regarding disposals of a significant component of an entity that does not qualify for discontinued operations reporting.This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014 with early adoption permitted. The Company does not believe the adoption of this guidance will have a material impact on the Company’s results of operations, cash flows or financial position. 
In May 2014, the FASB, in a joint effort with the International Accounting Standards Board, issued new accounting guidance to clarify the principles for recognizing revenue.  The new guidance is designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, and will affect any entity that enters into contracts with customers or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards.  The new guidance establishes principles for reporting information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity's contracts with customers.  The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance is effective prospectively for annual periods beginning after December 15, 2016, and interim periods within those years.  Early application is not permitted. The Company is currently evaluating this guidance to determine the impact on the Company’s results of operations, cash flows, and financial position.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date or, in some cases where early adoption is permitted, in advance of the specified effective date. The Company has assessed the recently issued standards that are not yet effective and, unless otherwise discussed, believes these standards will not have a material impact on the Company’s results of operations, cash flows or financial position.
 
Note 3 — Acquisitions
On February 3, 2014, the Company acquired Mayo Healthcare Pty Limited, (“Mayo Healthcare”), a distributor of medical devices and supplies primarily in the Australian market. The total fair value of consideration for the Mayo Healthcare acquisition was $28.5 million, which included an initial payment of $29.0 million in cash, partially offset by a $0.5 million favorable working capital adjustment. Transaction expenses associated with the acquisition, which are included in selling, general and administrative expenses on the condensed consolidated statements of income were $0.3 million for the nine months ended September 28, 2014. The results of operations of the Mayo Healthcare business are included in the condensed consolidated statements of income from the acquisition date. For the three months ended September 28, 2014, the Company recorded revenue and loss from continuing operations before taxes related to the Mayo Healthcare business of $6.5 million and $0.7 million, respectively.  For the nine months ended September 28, 2014, the Company recorded revenue and income from continuing operations before taxes related to the Mayo Healthcare business of $19.9 million and $3.1 million, respectively. Pro forma information is not presented as the Mayo Healthcare operations are not significant to the overall operations of the Company.

8

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

The following table presents the preliminary fair value determination of the assets acquired and liabilities assumed in the Mayo Healthcare acquisition.
 
(Dollars in thousands)
Assets
 
Current assets
$
10,393

Property, plant and equipment
306

Customer lists intangible asset
9,335

Goodwill
15,986

Total assets acquired
36,020

Liabilities
 
Current liabilities
4,685

Deferred tax liabilities
2,800

Liabilities assumed
7,485

Net assets acquired
$
28,535

 
The Company is continuing to evaluate the Mayo Healthcare acquisition. Further adjustments to the fair value determination may be necessary as a result of the Company’s assessment of additional information related to the fair values of assets acquired and liabilities assumed, primarily with respect to deferred tax assets and liabilities and goodwill.
Among the acquired assets, customer lists have a useful life of 10 years. The goodwill resulting from the acquisition primarily reflects the synergies expected to be realized from integration of the acquired business. Goodwill and the increase in carrying value resulting from the step-up in basis of the intangible assets in connection with stock acquisitions such as the Mayo Healthcare acquisition are not deductible for tax purposes.
The Company made the following acquisitions during 2013, all of which were accounted for as business combinations:

On December 2, 2013, the Company acquired Vidacare Corporation, (“Vidacare”), a provider of intraosseous, or inside the bone, access devices. This acquisition complements the Company’s vascular access and specialty product portfolios.
On June 11, 2013, the Company acquired the assets of Ultimate Medical Pty. Ltd. and its affiliates (“Ultimate”), a supplier of airway management devices and related products. This acquisition complements the Company’s anesthesia product portfolio.
On June 6, 2013, the Company acquired Eon Surgical, Ltd. (“Eon”), a developer of a minimally invasive microlaparoscopy surgical platform technology designed to enhance a surgeon’s ability to perform scarless surgery while producing better patient outcomes. This technology complements the Company’s surgical product portfolio.
The total fair value of consideration for the 2013 acquisitions was $307.0 million. The results of operations of the acquired businesses and assets are included in the consolidated statements of income from their respective acquisition dates. Pro forma information is not presented as the operations of the acquired businesses are not significant to the overall operations of the Company.
 
Note 4 — Restructuring and other impairment charges
2014 Manufacturing Footprint Realignment Plan
On April 28, 2014, the Board of Directors approved a restructuring plan (the “2014 Manufacturing Footprint Realignment Plan”) involving the consolidation of operations and a related reduction in workforce at certain of the Company’s facilities, and the relocation of manufacturing operations from certain higher-cost locations to existing lower-cost locations. These actions commenced in the quarter ended June 29, 2014 and are expected to be substantially completed by the end of 2017.

9

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

The Company estimates that it will incur aggregate pre-tax charges in connection with these restructuring activities of approximately $42 to $53 million, most of which are expected to be incurred prior to the end of 2016. In addition, the Company estimates that $32 million to $40 million of the aggregate pre-tax charges will result in future cash outlays, most of which are expected to be incurred prior to the end of 2016.  
The following table provides a summary of the Company’s current cost estimates by major type of cost associated with the 2014 Manufacturing Footprint Realignment Plan:
Type of cost
Total estimated amount expected to be incurred
 
 
Termination benefits
$12 million to $15 million
Facility closure and other exit costs(1)
$2 million to $5 million
Accelerated depreciation charges
$10 million to $12 million
Other (2)
$18 million to $21 million
 
$42 million to $53 million
 
(1)
Includes costs to transfer product lines among facilities and outplacement and employee relocation costs.
(2)
Consists of other costs directly related to the Plan, including project management, legal and regulatory costs.
 
     The Company recorded expenses of $2.1 million and $11.6 million for the three and nine months ended September 28, 2014, respectively, related to the 2014 Manufacturing Footprint Realignment Plan. Of these amounts, $0.2 million and $8.7 million were recorded as restructuring expense for the three and nine months ended September 28, 2014, respectively, and $1.9 million and $2.9 million, which related to accelerated depreciation and other costs resulting from the plan for the three and nine months ended September 28, 2014, respectively, were recorded as cost of sales. As of September 28, 2014, the Company has a restructuring reserve of $8.7 million in connection with the 2014 Manufacturing Footprint Realignment Plan all of which relates to termination benefits.
As the 2014 Manufacturing Footprint Realignment Plan progresses, management will reevaluate the estimated costs set forth above, and may revise its estimates and the accounting charges relating to these actions, as appropriate, consistent with generally accepted accounting principles.
2014 European Restructuring Plan
On February 27, 2014, the Company committed to a restructuring plan (the “2014 European Restructuring Plan”), which impacts certain administrative functions in Europe and involves the consolidation of operations and a related reduction in workforce at certain of the Company’s European facilities.
The Company estimates that it will record pre-tax charges of approximately $9 million in connection with implementation of the 2014 European Restructuring Plan, of which $8.7 million was incurred through September 28, 2014, primarily related to termination benefits. As of September 28, 2014, the Company had a reserve of $3.2 million in connection with the 2014 European Restructuring Plan.  The Company expects to complete this plan in 2014.
Other 2014 Restructuring Programs
In June 2014, the Company initiated programs to consolidate locations in Australia and terminate certain European distributor agreements in an effort to reduce costs. As a result of these actions, the Company estimates that it will incur an aggregate of approximately $3 million in restructuring and other impairment charges over the term of these restructuring programs, of which $2.1 million was incurred through September 28, 2014. These programs include costs related to termination benefits, contract termination costs and other exit costs. As of September 28, 2014, the Company has a reserve of $0.4 million in connection with these programs. The Company expects to complete the programs in 2014.

10

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

LMA Restructuring Program
In connection with the acquisition of substantially all of the assets of LMA International N.V. (the “LMA business”) in 2012, the Company commenced a program (the "LMA Restructuring Program") related to the integration of the LMA business and the Company’s other businesses. The program focuses on the closure of the LMA business’ corporate functions and the consolidation of manufacturing, sales, marketing, and distribution functions in North America, Europe and Asia.
A reconciliation of the changes in accrued liabilities associated with the LMA Restructuring Program from December 31, 2013 through September 28, 2014 is set forth in the following table:
 
Termination Benefits
 
Facility Closure Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
 
(Dollars in thousands)
Balance at December 31, 2013
$
552

 
$
427

 
$
3,686

 
$
16

 
$
4,681

Subsequent accruals (reversals)
(29
)
 
(112
)
 
(3,211
)
 

 
(3,352
)
Cash payments
(533
)
 
(317
)
 
(104
)
 

 
(954
)
Foreign currency translation
10

 
2

 
(14
)
 

 
(2
)
Balance at September 28, 2014
$

 
$

 
$
357

 
$
16

 
$
373


During the nine months ended September 28, 2014, the Company reversed approximately $3.2 million in contract termination costs related to the favorable settlement of a terminated distributor agreement.
The Company expects future restructuring expenses associated with this program, if any, to be nominal. The Company expects to complete the program in 2015.
2013 Restructuring Programs
In 2013, the Company initiated programs to consolidate manufacturing facilities in North America and warehouse facilities in Europe and terminate certain European distributor agreements in an effort to reduce costs. As a result of these actions, the Company estimates that it will incur an aggregate of up to $11.0 million in restructuring and other impairment charges over the term of these restructuring programs, of which $10.9 million was incurred through September 28, 2014. These programs entail costs related to termination benefits, contract termination costs and charges related to post-closing obligations associated with its acquired businesses. As of September 28, 2014, the Company has a reserve of $1.3 million in connection with these programs. The Company expects to complete the programs in 2015.
2012 Restructuring Program
In 2012, the Company identified opportunities to improve its supply chain strategy by consolidating its three North American warehouses into one centralized warehouse; and lower costs and improve operating efficiencies through the termination of certain distributor agreements in Europe, the closure of certain North American facilities and workforce reductions. The Company expects future restructuring expenses associated with this program, if any, to be nominal. As of September 28, 2014, the Company has a reserve of $0.6 million in connection with these projects. The Company expects to complete this program in 2015.
Impairment Charges
In the first quarter 2013, the Company recorded a $4.5 million in-process research and development (IPR&D) charge pertaining to a research and development project associated with the May 2012 acquisition of the assets of Axiom Technology Partners LLP because technological feasibility had not yet been achieved and the Company determined that the subject technology had no future alternative use.
In the third quarter of 2013, the Company recorded $3.4 million in impairment charges related to assets held for sale that had a carrying value in excess of their appraised fair value.

11

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

There were no impairment charges recorded for the three and nine months ended September 28, 2014.
The restructuring and other impairment charges recognized for the three and nine months ended September 28, 2014 and September 29, 2013 consisted of the following: 
 
Three Months Ended September 28, 2014
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility Closure Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
2014 Manufacturing footprint realignment plan
$
129

 
$

 
$

 
$
42

 
$
171

2014 European restructuring plan
537

 
1

 
1

 
27

 
566

Other 2014 restructuring programs
25

 

 
202

 
62

 
289

LMA restructuring program

 

 
20

 

 
20

2013 Restructuring programs
(124
)
 

 
186

 

 
62

Total restructuring and other impairment charges
$
567

 
$
1

 
$
409

 
$
131

 
$
1,108

 
Three Months Ended September 29, 2013
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility
Closure
Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
LMA restructuring program
$
492

 
$
162

 
$
1,097

 
$
17

 
$
1,768

2013 Restructuring programs
891

 

 
(65
)
 

 
826

2012 Restructuring program
559

 
539

 

 

 
1,098

2007 Arrow integration program

 
38

 

 

 
38

 
1,942

 
739

 
1,032

 
17

 
3,730

Impairment charges

 

 

 
3,354

 
3,354

Total restructuring and other impairment charges
$
1,942

 
$
739

 
$
1,032

 
$
3,371

 
$
7,084

 
Nine Months Ended September 28, 2014
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility
Closure
Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
2014 Manufacturing footprint realignment plan
$
8,706

 
$

 
$

 
$
42

 
$
8,748

2014 European restructuring plan
8,289

 
1

 
306

 
76

 
8,672

Other 2014 restructuring programs
501

 

 
1,376

 
193

 
2,070

LMA restructuring program
(29
)
 
(112
)
 
(3,211
)
 

 
(3,352
)
2013 Restructuring programs
361

 

 
243

 
22

 
626

2012 Restructuring program
(619
)
 
354

 

 

 
(265
)
2011 Restructuring program

 
12

 

 

 
12

Total restructuring and other impairment charges
$
17,209

 
$
255

 
$
(1,286
)
 
$
333

 
$
16,511


12

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

Nine Months Ended September 29, 2013
 
 
 
 
 
 
 
 
 
(in thousands)
Termination Benefits
 
Facility Closure Costs
 
Contract Termination Costs
 
Other Exit Costs
 
Total
LMA restructuring program
$
3,318

 
$
536

 
$
4,378

 
$
132

 
$
8,364

2013 Restructuring programs
2,443

 

 
3,326

 
2,887

 
8,656

2012 Restructuring program
3,225

 
641

 
293

 
5

 
4,164

2007 Arrow integration program

 
173

 

 

 
173

 
8,986

 
1,350

 
7,997

 
3,024

 
21,357

Impairment charges

 

 

 
7,848

 
7,848

Total restructuring and other impairment charges
$
8,986

 
$
1,350

 
$
7,997

 
$
10,872

 
$
29,205


Termination benefits include employee retention payments and severance payments and benefits for terminated employees.
Facility closure costs include general operating costs incurred subsequent to production shut-down as well as equipment relocation and other associated costs.
Contract termination costs include costs associated with terminating existing leases and distributor agreements.
Other costs include legal, outplacement and employee relocation costs and other employee-related costs.
Restructuring and other impairment charges by reportable segment for the three and nine months ended September 28, 2014 and September 29, 2013 are set forth in the following table:   
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Restructuring and other impairment charges
 
 
 
 
 
 
 
Vascular North America
$
(54
)
 
$
2,233

 
$
5,908

 
$
2,860

Anesthesia/Respiratory North America
15

 
332

 
1,193

 
3,001

Surgical North America

 

 

 
7,294

EMEA
849

 
2,221

 
7,164

 
11,428

Asia
111

 
202

 
708

 
447

OEM

 

 

 
588

All other
187

 
2,096

 
1,538

 
3,587

Total restructuring and other impairment charges
$
1,108

 
$
7,084

 
$
16,511

 
$
29,205

 

13

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

Note 5 — Inventories, net
Inventories as of September 28, 2014 and December 31, 2013 consisted of the following:
 
September 28, 2014
 
December 31, 2013
 
(Dollars in thousands)
Raw materials
$
73,170

 
$
70,209

Work-in-process
59,282

 
53,672

Finished goods
254,120

 
242,113

 
386,572

 
365,994

Less: Inventory reserve
(33,345
)
 
(32,373
)
Inventories, net
$
353,227

 
$
333,621

 
Note 6 — Goodwill and other intangible assets, net
The following table provides information relating to changes in the carrying amount of goodwill by reportable segment for the nine months ended September 28, 2014:
 
 
Vascular
North America
 
Anesthesia/
Respiratory
North America
 
Surgical
North America
 
EMEA
 
Asia
 
All
Other
 
Total
 
(Dollars in thousands)
Balance as of December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
474,044

 
$
167,195

 
$
250,506

 
$
373,417

 
$
136,946

 
$
284,223

 
$
1,686,331

Accumulated impairment losses
(219,527
)
 
(107,073
)
 

 

 

 
(5,528
)
 
(332,128
)
 
254,517

 
60,122

 
250,506

 
373,417

 
136,946

 
278,695

 
1,354,203

Goodwill related to acquisitions

 

 

 

 
15,986

 

 
15,986

Translation adjustment

 
(300
)
 

 
(17,467
)
 
(585
)
 
208

 
(18,144
)
Balance at September 28, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
474,044

 
166,895

 
250,506

 
355,950

 
152,347

 
284,431

 
1,684,173

Accumulated impairment losses
(219,527
)
 
(107,073
)
 

 

 

 
(5,528
)
 
(332,128
)
 
$
254,517

 
$
59,822

 
$
250,506

 
$
355,950

 
$
152,347

 
$
278,903

 
$
1,352,045


 
The following table provides information as of September 28, 2014 and December 31, 2013 regarding the gross carrying amount of, and accumulated amortization relating to, intangible assets, net:
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
September 28,
2014
 
December 31, 2013
 
September 28,
2014
 
December 31, 2013
 
(Dollars in thousands)
Customer relationships
$
631,983

 
$
628,020

 
$
(188,261
)
 
$
(168,223
)
In-process research and development
68,766

 
68,786

 

 

Intellectual property
433,227

 
435,869

 
(140,606
)
 
(118,086
)
Distribution rights
16,406

 
16,797

 
(14,466
)
 
(14,592
)
Trade names
403,460

 
407,879

 
(2,425
)
 
(1,148
)
Noncompete agreements
337

 
337

 
(169
)
 
(42
)
 
$
1,554,179

 
$
1,557,688

 
$
(345,927
)
 
$
(302,091
)
During the first quarter 2013, the Company recorded an IPR&D charge of $4.5 million. See Note 4 for additional information.

14

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

In May 2012, the Company acquired Semprus BioSciences, a biomedical research and development company that developed a polymer surface treatment technology intended to reduce thrombus related complications.  The Company experienced unexpected difficulties with respect to the development of the Semprus technology, which the Company is currently attempting to resolve through further research and testing. Failure to resolve these issues may result in a reduction of the expected future cash flows related to the Semprus technology and could result in the recognition of impairment charges with respect to the related assets, which could be material.  As of September 28, 2014, the Company has recorded assets at risk of approximately $41.0 million related to this investment.
Amortization expense related to intangible assets was $15.0 million and $12.5 million for the three months ended September 28, 2014 and September 29, 2013, respectively, and 47.1 million and 37.1 million for the nine months ended September 28, 2014 and September 29, 2013, respectively.  Estimated annual amortization expense for the remainder of 2014 and the next five succeeding years is as follows (dollars in thousands):
 
2014
$
13,700

2015
54,100

2016
53,700

2017
53,300

2018
53,000

2019
52,600

 
Note 7 — Borrowings
The components of long-term debt at September 28, 2014 and December 31, 2013 are as follows:
 
September 28, 2014
 
December 31, 2013
 
(Dollars in thousands)
Senior Credit Facility:
 
 
 
Revolving credit facility, at a rate of 1.90% at September 28, 2014, due 7/16/2018
$
200,000

 
$
680,000

3.875% Convertible Senior Subordinated Notes due 2017
399,991

 
400,000

6.875% Senior Subordinated Notes due 2019
250,000

 
250,000

5.25% Senior Notes due 2024
250,000

 

Total borrowings
1,099,991

 
1,330,000

Less: Unamortized debt discount on 3.875% Convertible Senior Subordinated Notes
(39,335
)
 
(48,413
)
 
1,060,656

 
1,281,587

Current portion of borrowings
(360,656
)
 
(351,587
)
 
$
700,000

 
$
930,000

 
5.25% Senior Notes due 2024

On May 21, 2014, the Company issued $250 million of 5.25% Senior Notes due 2024 (the “2024 Notes”). The Company will pay interest on the 2024 Notes semi-annually on June 15 and December 15, commencing on December 15, 2014, at a rate of 5.25% per year. The 2024 Notes will mature on June 15, 2024, unless earlier redeemed or purchased by the Company at the holder’s option under specified circumstances following a Change of Control or Asset Sale (each as defined in the Indenture related to the 2024 Notes) or upon the Company’s election to exercise its optional redemption rights, as described below. The Company incurred transaction fees of approximately $4.5 million, including underwriters’ discounts and commissions, in connection with the offering of the 2024 Notes, which were recorded as a deferred asset and are being amortized over the term of the 2024 Notes. The Company used $245.0 million of the proceeds to repay borrowings under its revolving credit facility.

15

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

The Company's obligations under the 2024 Notes are fully and unconditionally guaranteed, jointly and severally, by each of the Company’s existing and future wholly-owned domestic subsidiaries that is a guarantor or other obligor under the Company’s revolving credit facility and by certain of the Company’s other wholly-owned domestic subsidiaries.
At any time on or after June 15, 2019, the Company may, on one or more occasions, redeem some or all of the 2024 Notes at a redemption price of 102.625% of the principal amount of the 2024 Notes subject to redemption, declining, in annual increments of 0.875%, to 100% of the principal amount on June 15, 2022, plus accrued and unpaid interest.  In addition, at any time prior to June 15, 2019, the Company may, on one or more occasions, redeem some or all of the 2024 Notes at a redemption price equal to 100% of the principal amount of the 2024 Notes redeemed, plus a “make-whole” premium and any accrued and unpaid interest.  The “make-whole” premium is the greater of (a) 1.0% of the principal amount of the 2024 Notes subject to redemption or (b) the excess, if any, over the principal amount of the 2024 Notes of the present value, on the redemption date, of the sum of (i) the June 15, 2019 optional redemption price  plus (ii) all required interest payments on the 2024 Notes through June 15, 2019 (other than accrued and unpaid interest to the redemption date), calculated based on a specified Treasury rate, generally for the period most nearly equal to the period from the redemption date to June 15, 2019, plus 50 basis points.
In addition, at any time prior to June 15, 2017, the Company may, on one or more occasions, redeem up to 35% of the aggregate principal amount of the 2024 Notes, using the proceeds of specified types of Company equity offerings and subject to specified conditions, at a redemption price equal to 105.25% of the principal amount of the Notes redeemed, plus accrued and unpaid interest.
The 2024 Notes contain covenants that, among other things, limit or restrict the Company’s ability, and the ability of its subsidiaries, to incur debt, create liens, consolidate, merge or dispose of certain assets, make certain investments, engage in acquisitions, pay dividends on, repurchase or make distributions in respect of capital stock and enter into swap agreements.

 Classification of 3.875% Convertible Notes as a Current Liability
The Company’s 3.875% Convertible Senior Subordinated Notes due 2017 (the “Convertible Notes”) are convertible under certain circumstances, including in any fiscal quarter following an immediately preceding fiscal quarter in which the last reported sales price per share of our common stock for at least 20 days during a period of 30 consecutive trading days ending on the last day of such fiscal quarter exceeds 130% of the $61.32 per share conversion price of the Convertible Notes (approximately $79.72). Since the fourth quarter of 2013, the Company’s closing stock price has exceeded the 130% threshold described above and, accordingly, the Convertible Notes have been classified as a current liability as of September 28, 2014 and December 31, 2013. The determination of whether or not the Convertible Notes are convertible under such circumstances is made each quarter until maturity or conversion. Consequently, the Convertible Notes may not be convertible in one or more future quarters if the common stock price-based contingent conversion threshold is not met in such quarters, in which case the Convertible Notes would again be classified as long-term debt unless another conversion event set forth in the Convertible Notes has occurred. The Company has elected a net settlement method to satisfy the conversion obligation, under which it may settle the principal amount of the Convertible Notes in cash and settle the excess of the conversion value of the Convertible Notes over the principal amount of the notes in shares; however, cash will be paid in lieu of fractional shares. While the Company believes it has sufficient liquidity to repay the principal amounts due through a combination of its existing cash on hand and borrowings under its credit facility, the Company’s use of these funds could adversely affect its results of operations and liquidity. The classification of the Convertible Notes as a current liability had no impact on the Company's financial covenants.
 

16

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

Fair Value of Long-Term Debt
The carrying amount of long-term debt reported in the consolidated balance sheet as of September 28, 2014 is $1,060.7 million. The Company uses quoted market prices to estimate the fair value of its publicly traded debt. To estimate the fair value of debt for which there are no quoted market prices, the Company uses a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile. The Company’s implied credit rating is a factor in determining the market interest yield curve. The following table provides the fair value of the Company’s debt as of September 28, 2014, categorized by fair value hierarchy level (see Note 10, “Fair value measurement,” in the Company’s annual report on Form 10-K for the year ended December 31, 2013 for further information):
 
 
Fair value of debt
 
(Dollars in thousands)
Level 1
$
955,567

Level 2
442,337

Total
$
1,397,904


Note 8 — Financial instruments
The Company uses derivative instruments for risk management purposes. Foreign currency forward contracts are used to manage foreign currency transaction exposure. These derivative instruments are designated as cash flow hedges and are recorded on the balance sheet at fair market value. The effective portion of the gains or losses on derivatives is reported as a component of other comprehensive income and thereafter is recognized in the condensed consolidated statement of income in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in the condensed consolidated statement of earnings in the period in which such gains and losses occur.
The following table presents the location and fair values of derivative instruments designated as hedging instruments in the condensed consolidated balance sheet as of September 28, 2014 and December 31, 2013:
 
September 28,
2014
 
December 31,
2013
 
Fair Value
 
Fair Value
 
(Dollars in thousands)
Asset derivatives:
 
 
 
Foreign currency forward contracts:
 

 
 

Prepaid expenses and other current assets
$
959

 
$

Total asset derivatives
$
959

 
$

Liability derivatives:
 
 
 
Foreign currency forward contracts:
 

 
 

Other current liabilities
$
471

 
$

Total liability derivatives
$
471

 
$

The total notional amount for all open foreign currency forward contracts as of September 28, 2014 is approximately $20.5 million. As of December 31, 2013, the Company had no open foreign currency forward contracts.

17

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

The following table provides information as to the gains and losses attributable to derivatives in cash flow hedging relationships that were reported in other comprehensive income (“OCI”) for the three and nine months ended September 28, 2014 and September 29, 2013:
 
 
After Tax Gain/(Loss)
Recognized in OCI
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(Dollars in thousands)
Foreign currency forward contracts
$
60

 
$
(40
)
 
$
203

 
$
(52
)
Total
$
60

 
$
(40
)
 
$
203

 
$
(52
)
 
See Note 10 for information on the location and amount of gains and losses attributable to derivatives that were reclassified from accumulated other comprehensive income (“AOCI”) to expense (income), net of tax.
There was no ineffectiveness related to the Company’s derivatives used during the three and nine months ended September 28, 2014 and September 29, 2013.
Based on exchange rates at September 28, 2014, approximately $0.2 million of unrealized gains, net of tax, within AOCI are expected to be reclassified from AOCI to the condensed consolidated statement of income during the remainder of 2014. However, the actual amount reclassified from AOCI could vary due to future changes in exchange rates.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable is generally limited due to the Company’s large number of customers and their diversity across many geographic areas. A portion of the Company’s trade accounts receivable outside the United States, however, include sales to government-owned or supported healthcare systems in several countries which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries’ economies.
In the ordinary course of business, the Company grants non-interest bearing trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all of its customer relationships, (ii) performs ongoing credit evaluations of its customers’ financial condition, (iii) monitors the payment history and aging of its customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.
An allowance for doubtful accounts is maintained for accounts receivable based on the Company’s historical collection experience and expected collectability of the accounts receivable, considering the period an account is outstanding, the financial position of the customer and information provided by credit rating services. The adequacy of this allowance is reviewed each reporting period and adjusted as necessary. The allowance for doubtful accounts was $10.4 million and $10.7 million at September 28, 2014 and December 31, 2013, respectively.
In light of the disruptions in global economic markets in recent years, the Company instituted enhanced measures, within countries where the Company has collectability concerns, to facilitate customer-by-customer risk assessment when estimating the allowance for doubtful accounts. Such measures include, among others, monthly credit control committee meetings, at which customer credit risks are identified after review of, among other things, accounts that exceed specified credit limits, payment delinquencies and other customer issues. In addition, for some of the Company’s non-government customers, the Company instituted measures designed to reduce its risk exposures, including issuing dunning letters, reducing credit limits, requiring that payments accompany orders and instituting legal action with respect to delinquent accounts. With respect to government customers, the Company evaluates receivables for potential collection risks associated with the availability of government funding and reimbursement practices.

18

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

Some of the Company’s customers, particularly in Europe, have extended or delayed payments for products and services already provided. Collectability concerns regarding the Company’s accounts receivable from these customers, for the most part in Greece, Italy, Spain and Portugal, resulted in an increase in the allowance for doubtful accounts related to these countries. If the financial condition of these customers or the healthcare systems in these countries deteriorate such that the ability of an increasing number of customers to make payments is uncertain, additional allowances may be required in future periods. The aggregate net current and long-term accounts receivable for Spain, Italy, Greece and Portugal as a percentage of the Company’s net current and long-term accounts receivable at September 28, 2014 and December 31, 2013 are as follows:
 
 
September 28,
2014
 
December 31,
2013
 
(Dollars in thousands)
Current and long-term accounts receivable (net of allowances of $8.9 million and $7.9 million at September 28, 2014 and December 31, 2013, respectively) in Spain, Italy, Greece and Portugal (1)
$
87,733

 
$
97,852

Percentage of total net current and long-term accounts receivable
29.4
%
 
31.0
%
 
(1)The long-term portion of accounts receivable, net at September 28, 2014 and December 31, 2013 was $15.5 million and $17.6 million, respectively.
For the nine months ended September 28, 2014 and September 29, 2013, net revenues from customers in Spain, Italy, Greece and Portugal were $114.8 million and $106.3 million, respectively.

Note 9 — Fair value measurement
For a description of the fair value hierarchy, see Note 10 to the Company’s 2013 consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2013.
The following tables provide information regarding the financial assets and liabilities measured at fair value on a recurring basis as of September 28, 2014 and December 31, 2013:
 
 
Total carrying
value at
September 28,
2014
 
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
$
6,540

 
$
6,540

 
$

 
$

Derivative assets
959

 

 
959

 

Derivative liabilities
471

 

 
471

 

Contingent consideration liabilities
12,643

 

 

 
12,643

 
 
Total carrying
value at
December 31, 2013
 
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
$
6,150

 
$
6,150

 
$

 
$

Contingent consideration liabilities
20,313

 

 

 
20,313

There were no transfers of financial assets or liabilities carried at fair value among Level 1, Level 2 or Level 3 within the fair value hierarchy during the nine months ended September 28, 2014.

19

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

The following table provides information regarding changes in Level 3 financial liabilities related to contingent consideration in connection with various Company acquisitions during the nine months ended September 28, 2014:
 
 
Contingent consideration
 
2014
 
(Dollars in thousands)
Balance - December 31, 2013
$
20,313

Revaluations
(7,670
)
Balance - September 28, 2014
$
12,643

For the three and nine months ended September 28, 2014, the Company recorded net reductions to contingent consideration liabilities of $1.5 million and $8.2 million, respectively, and for the three and nine months ended September 29, 2013, the Company recorded reductions to contingent consideration liabilities of $4.4 million and $12.4 million, respectively.   These reductions were the result of changes in probabilities associated with certain regulatory and sales milestones.
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 pay benefits under certain deferred compensation plans and other compensatory arrangements. The investment assets of the trust are valued using quoted market prices.
The Company’s financial assets and financial liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company uses foreign currency forward contracts to manage currency transaction exposure. The fair value of the foreign currency forward contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. The Company has taken into account the creditworthiness of the counterparties in measuring fair value.
     The Company’s financial liabilities valued based upon Level 3 inputs are comprised of contingent consideration arrangements pertaining to the Company’s acquisitions. The Company accounts for contingent consideration in accordance with applicable accounting guidance related to business combinations. In connection with several of its acquisitions, the Company agreed to pay contingent consideration upon the achievement of specified objectives, including receipt of regulatory approvals, achievement of sales targets and, in some instances, the passage of time (collectively, “milestone payments”), and therefore recorded contingent consideration liabilities at the time of the acquisitions. The Company is required to reevaluate the fair value of contingent consideration each reporting period based on new developments and record changes in fair value until such consideration is satisfied through payment upon the achievement of the specified objectives or is no longer payable due to failure to achieve the specified objectives.
In connection with the Company's contingent consideration arrangements, the Company estimates that it will make payments in 2015 and may make payments until 2018 or later. As of September 28, 2014, the range of undiscounted amounts the Company could be required to pay under contingent consideration arrangements is between zero and $56.5 million. The Company determines the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments under contingent consideration arrangements is based on several factors including:
l
estimated cash flows projected from the success of market launches;
l
the estimated time and resources needed to complete the development of acquired technologies;
l
the uncertainty of obtaining regulatory approvals within the required time periods; and
l
the risk adjusted discount rate for fair value measurement.

20

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

The following table provides information regarding the valuation techniques and inputs used in determining the fair value of assets or liabilities categorized as Level 3 measurements as of September 28, 2014:
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Contingent consideration
Discounted cash flow
 
Discount rate
 
2.3% - 10% (8.6%)
 
 
 
Probability of payment
 
0% - 100% (28.3%)
As of September 28, 2014, of the $12.6 million of total recorded liabilities for contingent consideration, the Company has recorded approximately $3.0 million of contingent consideration as a current liability, and the remaining $9.6 million within other liabilities.
 
Note 10 — Changes in shareholders’ equity
In 2007, the Company’s Board of Directors authorized the repurchase of up to $300 million of outstanding Company common stock. Repurchases of Company stock under the Board authorization may be made from time to time in the open market and may include privately-negotiated transactions as market conditions warrant and subject to regulatory considerations. The stock repurchase program has no expiration date and the Company’s ability to execute on the program will depend on, among other factors, cash requirements for acquisitions, cash generated from operations, debt repayment obligations, market conditions and regulatory requirements. In addition, under the Company’s senior credit agreements, the Company is subject to certain restrictions relating to its ability to repurchase shares in the event the Company’s consolidated leverage ratio (generally, the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, as defined in the senior credit agreements) exceeds certain levels, which may limit the Company’s ability to repurchase shares under this Board authorization. Through September 28, 2014, no shares have been purchased under this Board authorization.
The following table provides a reconciliation of basic to diluted weighted average shares outstanding:
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Shares in thousands)
Basic
41,399

 
41,132

 
41,347

 
41,087

Dilutive effect of share-based awards
440

 
383

 
441

 
383

Dilutive effect of 3.875% Convertible Notes and warrants
4,789

 
1,749

 
4,468

 
1,776

Diluted
46,628

 
43,264

 
46,256

 
43,246

Weighted average shares that were antidilutive and therefore not included in the calculation of earnings per share were approximately 6.3 million and 6.4 million for the three and nine months ended September 28, 2014 respectively, and approximately 8.0 million and 7.9 million for the three and nine months ended September 29, 2013, respectively.
The Convertible Notes are included in the diluted net income per share calculation during periods in which the average market price of the Company's common stock is above the applicable conversion price of the Convertible Notes, or $61.32 per share, and, therefore, the impact of conversion would be dilutive. In these periods, under the treasury stock method, we calculate the number of shares issuable under the terms of the Convertible Notes based on the average market price of the stock during the period, and include that number in the total diluted shares outstanding for the period.

21

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

In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge and warrant agreements. The convertible note hedge economically reduces the dilutive impact of the Convertible Notes. However, because applicable accounting guidance requires the Company to separately analyze the impact of the convertible note hedge agreements and the impact of the warrant agreements on diluted weighted average shares outstanding, the impact of the convertible note hedge agreements are excluded from the calculation of earnings per share because it would be anti-dilutive. The anti-dilutive shares associated with the convertible note hedges are 2.8 million and 2.7 million for the three and nine months ended September 28, 2014, respectively and 1.4 million for both the three and nine months ended September 29, 2013. The treasury stock method is applied when the warrants are in-the-money and assumes the proceeds from the exercise of the warrants are used to repurchase shares based on the average stock price during the period. The strike price of the warrants is approximately $74.65 per share of common stock. Shares issuable upon exercise of the warrants that were included in the total diluted shares outstanding were 2.0 million and 1.8 million for the three and nine months ended September 28, 2014, respectively and 0.3 million or both the three and nine months ended September 29, 2013.
For additional information regarding the convertible notes and convertible note hedge and warrant agreements see Note 8 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.
The following tables provide information relating to the changes in accumulated other comprehensive income (loss), net of tax, for the nine months ended September 28, 2014 and September 29, 2013:
 
 
Cash Flow Hedges
 
Pension and Other Postretirement Benefit Plans
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive Income (Loss)
 
(Dollars in thousands)
Balance as of December 31, 2013
$

 
$
(97,037
)
 
$
(13,818
)
 
$
(110,855
)
Other comprehensive income (loss) before reclassifications
641

 
131

 
(41,133
)
 
(40,361
)
Amounts reclassified from accumulated other comprehensive income (loss)
(438
)
 
2,205

 

 
1,767

Net current-period other comprehensive income (loss)
203

 
2,336

 
(41,133
)
 
(38,594
)
Balance at September 28, 2014
$
203

 
$
(94,701
)
 
$
(54,951
)
 
$
(149,449
)

 
Cash Flow Hedges
 
Pension and Other Postretirement Benefit Plans
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive Income (Loss)
 
(Dollars in thousands)
Balance at December 31, 2012
$
(381
)
 
$
(127,257
)
 
$
(4,410
)
 
$
(132,048
)
Other comprehensive income (loss) before reclassifications
(370
)
 
(762
)
 
(9,018
)
 
(10,150
)
Amounts reclassified from accumulated other comprehensive income (loss)
318

 
3,497

 

 
3,815

Net current-period other comprehensive income (loss)
(52
)
 
2,735

 
(9,018
)
 
(6,335
)
Balance at September 29, 2013
$
(433
)
 
$
(124,522
)
 
$
(13,428
)
 
$
(138,383
)
  

22

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

The following table provides information relating to the reclassifications of losses/(gain) in accumulated other comprehensive income into expense/(income), net of tax, for the three and nine months ended September 28, 2014 and September 29, 2013:
 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
(Gains) losses on foreign exchange contracts:
 
 
 
 
 
 
 
Cost of goods sold
$
(397
)
 
$
850

 
$
(526
)
 
$
154

Total before tax
(397
)
 
850

 
(526
)
 
154

Tax benefit
49

 
(158
)
 
88

 
164

Net of tax
$
(348
)
 
$
692

 
$
(438
)
 
$
318

Amortization of pension and other postretirement benefit items:
 
 
 
 
 
 
 
Actuarial losses/(gains) (1)
$
1,090

 
$
1,696

 
$
3,295

 
$
5,460

Prior-service costs(1)
(5
)
 
(4
)
 
(16
)
 
(15
)
Transition obligation(1)

 
1

 

 
4

Total before tax
1,085

 
1,693

 
3,279

 
5,449

Tax expense
(378
)
 
(604
)
 
(1,074
)
 
(1,952
)
Net of tax
$
707

 
$
1,089

 
$
2,205

 
$
3,497

 
 
 
 
 
 
 
 
Total reclassifications, net of tax
$
359

 
$
1,781

 
$
1,767

 
$
3,815


(1)
These accumulated other comprehensive income components are included in the computation of net benefit cost of pension and other postretirement benefit plans (see Note 12 for additional information).

Note 11 — Taxes on income from continuing operations
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
Effective income tax rate
14.9%
 
10.2%
 
16.8%
 
14.0%
The effective income tax rate for the three and nine months ended September 28, 2014 was 14.9% and 16.8%, respectively, and 10.2% and 14.0% for the three and nine months ended September 29, 2013, respectively. The effective tax rate for the three and nine months ended September 28, 2014 benefited from a shift in the mix of taxable income to jurisdictions that have lower statutory rates.  Nevertheless, the effective tax rate for the three and nine months ended September 29, 2013 was lower than the effective income tax rate in the 2014 periods, reflecting the realization of net tax benefits resulting from the resolution of a foreign tax matter and the expiration of statutes of limitation for U.S. federal and state matters.

Note 12 — Pension and other postretirement benefits
The Company has a number of defined benefit pension and postretirement plans covering eligible U.S. and non-U.S. employees. The defined benefit pension plans are noncontributory. The benefits under these plans are based primarily on years of service and employees’ pay near retirement. The Company’s funding policy for U.S. plans is to contribute annually, at a minimum, amounts required by applicable laws and regulations. Obligations under non-U.S. plans are systematically provided for by depositing funds with trustees or by book reserves. As of September 28, 2014, the Company’s U.S. defined benefit pension plans and the Company’s other postretirement benefit plans, except certain postretirement benefit plans covering employees subject to a collective bargaining agreement, are frozen.

23

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

The Company and certain of its subsidiaries provide medical, dental and life insurance benefits to pensioners and survivors. The associated plans are unfunded and approved claims are paid from Company funds.
Net benefit cost of pension and postretirement benefit plans consisted of the following:
 
 
Pension
Three Months Ended
 
Other Postretirement Benefits
Three Months Ended
 
Pension
Nine Months Ended
 
Other Postretirement Benefits
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Service cost
$
453

 
$
432

 
$
42

 
$
176

 
$
1,350

 
$
1,361

 
$
318

 
$
501

Interest cost
4,548

 
4,333

 
434

 
543

 
13,517

 
12,614

 
1,627

 
2,084

Expected return on plan assets
(6,240
)
 
(5,784
)
 

 

 
(18,764
)
 
(17,328
)
 

 

Net amortization and deferral
1,143

 
1,556

 
(58
)
 
137

 
3,284

 
4,380

 
(5
)
 
1,069

Net benefit expense (income)
$
(96
)
 
$
537

 
$
418

 
$
856

 
$
(613
)
 
$
1,027

 
$
1,940

 
$
3,654

The Company’s pension contributions are expected to be approximately $9.4 million during 2014, of which $2.7 million and $7.4 million were made during the three and nine months ended September 28, 2014, respectively.

Note 13 — Commitments and contingent liabilities
Operating leases: The Company uses various leased facilities and equipment in its operations. The terms for these leased assets vary depending on the terms of the applicable lease agreement. At September 28, 2014, the Company had no residual value guarantee obligations related to its operating leases.
As of September 28, 2014, the Company recorded $28.2 million in property, plant and equipment representing the estimated fair value of the Company’s percentage of the costs to construct a building under a build-to-suit lease. The build-to-suit lease, which relates to a U.S. operating facility, was entered into in August 2013 and amended in March of 2014. Construction on the build-to-suit facility commenced in September 2013 and is expected to be completed in the fourth quarter of 2014. The estimated fair value of the Company’s percentage of the construction costs to complete the build-to-suit lease is approximately $28.3 million. For accounting purposes, the Company is deemed the owner of the asset during the construction period and is required to record the estimated fair value of the Company’s percentage of the construction costs as construction in progress during the construction period and a related liability in the same amount. This noncash activity is not reflective of the Company’s cash obligations, but represent the landlord’s costs to construct the Company’s portion of the building and tenant improvements. Based on current expectations, the Company believes that there are no continuing involvement requirements that would prohibit the Company from derecognizing the assets and related liabilities upon the completion of the construction period.
Environmental: The Company is subject to contingencies as a result of environmental laws and regulations that in the future may require the Company to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the Company or other parties. Much of this liability results from the U.S. Comprehensive Environmental Response, Compensation and Liability Act, often referred to as Superfund, the U.S. Resource Conservation and Recovery Act and similar state laws. These laws require the Company to undertake certain investigative and remedial activities at sites where the Company conducts or once conducted operations or at sites where Company-generated waste was disposed.
Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, the regulatory agencies involved and their enforcement policies, as well as the presence or absence of other potentially responsible parties. At September 28, 2014 and December 31, 2013, the Company has recorded $2.2 million and $2.5 million, respectively, in accrued liabilities and $5.3 million and $5.8 million, respectively, in other liabilities relating to these matters. Considerable uncertainty exists with respect to these liabilities and, if adverse changes in circumstances occur, the potential liability may exceed the amount accrued as of September 28, 2014. The time frame, over which the accrued amounts may be paid out, based on past history, is estimated to be 15-20 years.

24

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

Litigation: The Company is a party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability, intellectual property, employment and environmental matters. As of September 28, 2014 and December 31, 2013, the Company has recorded reserves of approximately $4.2 million and $6.8 million, respectively, in connection with such contingencies, representing what it believes to be a better estimate of the cost than any other amount within the range of estimated possible losses that will be incurred to resolve these matters. Based on information currently available, advice of counsel, established reserves and other resources, the Company does not believe that any such actions likely will have, individually or in the aggregate, a material adverse effect on its business, financial condition, results of operations or liquidity. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may have such a material adverse effect.
Tax audits and examinations: The Company and its subsidiaries are routinely subject to tax examinations by various taxing authorities. As of September 28, 2014, the most significant tax examinations in process are in Austria, Canada, the Czech Republic, Germany and the United States. In conjunction with these examinations and as a regular and routine practice, the Company may establish reserves or adjust existing reserves with respect to uncertain tax positions. Accordingly, developments occurring with respect to these examinations, including resolution of uncertain tax positions, could result in increases or decreases to the Company’s recorded tax liabilities, which could impact the Company’s financial results.
Other: The Company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary conduct of its business. On average, such commitments are not at prices in excess of current market prices.
 
Note 14 — Business segment information
An operating segment is a component of the Company (a) that engages in business activities from which it may earn revenues and incur expenses, (b) whose operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and (c) for which discrete financial information is available. The Company does not evaluate its operating segments using discrete asset information.
Effective January 1, 2014, the Company realigned its operating segments due to changes in the Company’s internal financial reporting structure. The Company’s North American Vascular, Anesthesia/Respiratory and Surgical businesses, which previously comprised much of the former Americas reportable segment, are now separate reportable segments.  As a result, the Company now has six reportable segments: Vascular North America, Anesthesia/Respiratory North America, Surgical North America, EMEA, Asia and OEM. Certain operating segments are not material and are therefore included in the “All other” line item in tabular presentations of segment information. Additionally, the Company changed the allocation methodology of certain corporate costs, including manufacturing variances and research and development costs, among its businesses to improve accountability, which resulted in changes to the previously reported segment profitability. All prior comparative periods have been restated to reflect these changes.
The Company’s Vascular North America, Anesthesia/Respiratory North America, Surgical North America, EMEA and Asia reportable segments design, manufacture and distribute medical devices primarily used in critical care, surgical applications and cardiac care and generally serve two end markets: hospitals and healthcare providers, and home health. The products of these segments are most widely used in the acute care setting for a range of diagnostic and therapeutic procedures and in general and specialty surgical applications. The Company’s OEM segment designs, manufactures and supplies devices and instruments for other medical device manufacturers.

25

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

The following tables present the Company’s segment results for the three and nine months ended September 28, 2014 and September 29, 2013:
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Revenue
 
 
 
 
 
 
 
Vascular North America
$
63,792

 
$
55,058

 
$
190,485

 
$
168,478

Anesthesia/Respiratory North America
54,699

 
53,842

 
164,462

 
170,532

Surgical North America
36,127

 
34,147

 
109,327

 
108,584

EMEA
141,146

 
132,265

 
446,061

 
412,525

Asia
62,035

 
55,263

 
174,176

 
148,040

OEM
39,174

 
33,774

 
108,966

 
97,222

All other
60,200

 
49,447

 
170,347

 
140,351

Consolidated net revenues
$
457,173

 
$
413,796

 
$
1,363,824

 
$
1,245,732

 
 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Operating Profit
 
 
 
 
 
 
 
Vascular North America
$
11,870

 
$
6,042

 
$
31,250

 
$
17,394

Anesthesia/Respiratory North America
9,421

 
3,541

 
21,401

 
18,483

Surgical North America
12,394

 
10,333

 
37,308

 
37,646

EMEA
28,810

 
21,074

 
85,771

 
65,542

Asia
14,785

 
18,894

 
44,718

 
44,961

OEM
9,651

 
6,684

 
24,551

 
20,778

All other
12,441

 
11,071

 
32,564

 
22,593

Total segment operating profit (1)
99,372

 
77,639

 
277,563

 
227,397

Unallocated expenses (2)
(17,437
)
 
(11,597
)
 
(61,856
)
 
(48,200
)
Income from continuing operations before interest, loss on extinguishments of debt and taxes
$
81,935

 
$
66,042

 
$
215,707

 
$
179,197

(1)
Segment operating profit includes segment net revenues from external customers reduced by its standard cost of goods sold, adjusted for fixed manufacturing cost absorption variances, selling, general and administrative expenses, research and development expenses and an allocation of corporate expenses. Corporate expenses are allocated among the segments in proportion to the respective amounts of one of several items (such as sales, numbers of employees, and amount of time spent), depending on the category of expense involved.
(2)
Unallocated expenses primarily include manufacturing variances, with the exception of fixed manufacturing cost absorption variances, and restructuring and other impairment charges.
 

26

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

 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Depreciation and Amortization
 
 
 
 
 
 
 
Vascular North America
$
7,921

 
$
7,222

 
$
23,842

 
$
20,656

Anesthesia/Respiratory North America
5,321

 
3,948

 
13,457

 
10,663

Surgical North America
909

 
2,476

 
4,944

 
7,708

EMEA
9,688

 
7,035

 
28,298

 
20,666

Asia
2,003

 
1,134

 
6,146

 
3,506

OEM
1,651

 
1,123

 
4,715

 
3,370

All other
4,946

 
4,137

 
14,852

 
12,466

Consolidated depreciation and amortization
$
32,439

 
$
27,075

 
$
96,254

 
$
79,035


Geographic Data
The following table provides total net revenues for the three and nine months ended September 28, 2014 and September 29, 2013 and total net property, plant and equipment by geographic region as of September 28, 2014 and December 31, 2013:
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
(Dollars in thousands)
Net revenue (based on selling location)
 
 
 
 
 
 
 
United States
$
231,278

 
$
205,049

 
$
676,088

 
$
623,397

Other Americas
14,440

 
12,108

 
44,399

 
40,786

Europe
157,797

 
137,848

 
500,763

 
419,062

All other
53,658

 
58,791

 
142,574

 
162,487

 
$
457,173

 
$
413,796

 
$
1,363,824

 
$
1,245,732


 
September 28, 2014
 
December 31, 2013
 
(Dollars in thousands)
Net property, plant and equipment
 
 
 
United States
$
201,045

 
$
203,985

Czech Republic
38,728

 
41,607

Malaysia
35,972

 
29,313

All other
71,488

 
50,995

 
$
347,233

 
$
325,900



27

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

Note 15 — Condensed consolidated guarantor financial information
In June 2011, Teleflex Incorporated (referred to below as “Parent Company”) issued $250 million of 6.875% senior subordinated notes through a registered public offering. The notes are guaranteed, jointly and severally, by certain of the Parent Company’s subsidiaries (each, a “Guarantor Subsidiary” and collectively, the “Guarantor Subsidiaries”). The guarantees are full and unconditional, subject to certain customary release provisions. Each Guarantor Subsidiary is directly or indirectly 100% owned by the Parent Company. The Company’s condensed consolidating statements of income and comprehensive income (loss) for the three and nine months ended September 28, 2014 and September 29, 2013, condensed consolidating balance sheets as of September 28, 2014 and December 31, 2013 and condensed consolidating statements of cash flows for the nine months ended September 28, 2014 and September 29, 2013, provide consolidated information for:
a.
Parent Company, the issuer of the guaranteed obligations;
b.
Guarantor Subsidiaries, on a combined basis;
c.
Non-guarantor subsidiaries, on a combined basis; and
d.
Parent Company and its subsidiaries on a consolidated basis.
The same accounting policies as described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 are used by the Parent Company and each of its subsidiaries in connection with the condensed consolidated financial information, except for the use by the Parent Company and Guarantor Subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation.
Consolidating entries and eliminations in the following condensed consolidated financial statements represent adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the Guarantor Subsidiaries and the Non-guarantor subsidiaries, (b) eliminate the investments in subsidiaries and (c) record consolidating entries.
The Company adjusted the 2013 condensed consolidating statement of cash flows included within the guarantor financial information to correctly present dividends received from subsidiaries as an operating activity. The corrections had no impact on the consolidated financial information, but resulted only in reclassifications among the parent, guarantor subsidiaries, non-guarantor subsidiaries and eliminations. The Company does not consider the errors to be material to the previously issued consolidated financial statements.
The following table illustrates the increase/(decrease) to the previously reported amounts for the nine months ended September 29, 2013:
 
Nine Months Ended September 29, 2013
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Cash Flows from Operating Activities of Continuing Operations
$
1,200

 
$
61,134

 
$
3,737

 
$
(66,071
)
 
$

Cash Flows from Financing Activities of Continuing Operations:
 

 
 

 
 

 
 

 
 

Intercompany transactions
(1,200
)
 
(43,734
)
 
44,934

 

 

Intercompany dividends paid

 
(17,400
)
 
(48,671
)
 
66,071

 

Cash Flows from Financing Activities of Continuing Operations
$
(1,200
)
 
$
(61,134
)
 
$
(3,737
)
 
$
66,071

 
$

 
 

 

28

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

TELEFLEX INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
Three Months Ended September 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
261,346

 
$
272,083

 
$
(76,256
)
 
$
457,173

Cost of goods sold

 
161,298

 
136,526

 
(76,817
)
 
221,007

Gross profit

 
100,048

 
135,557

 
561

 
236,166

Selling, general and administrative expenses
8,978

 
77,352

 
52,002

 
(80
)
 
138,252

Research and development expenses

 
12,871

 
2,000

 

 
14,871

Restructuring and other impairment charges

 
148

 
960

 

 
1,108

Income (loss) from continuing operations before interest, and taxes
(8,978
)
 
9,677

 
80,595

 
641

 
81,935

Interest expense
37,913

 
(22,346
)
 
1,617

 

 
17,184

Interest income

 

 
(161
)
 

 
(161
)
Income (loss) from continuing operations before taxes
(46,891
)
 
32,023

 
79,139

 
641

 
64,912

Taxes (benefit) on income (loss) from continuing operations
(16,761
)
 
13,984

 
10,505

 
1,956

 
9,684

Equity in net income of consolidated subsidiaries
85,187

 
60,295

 
96

 
(145,578
)
 

Income from continuing operations
55,057

 
78,334

 
68,730

 
(146,893
)
 
55,228

Operating loss from discontinued operations
(247
)
 

 

 

 
(247
)
Taxes (benefit) on loss from discontinued operations
(21
)
 

 
45

 

 
24

Loss from discontinued operations
(226
)
 

 
(45
)
 

 
(271
)
Net income
54,831

 
78,334

 
68,685

 
(146,893
)
 
54,957

Less: Income from continuing operations attributable to noncontrolling interests

 

 
126

 

 
126

Net income attributable to common shareholders
54,831

 
78,334

 
68,559

 
(146,893
)
 
54,831

Other comprehensive loss attributable to common shareholders
(45,201
)
 
(58,947
)
 
(43,438
)
 
102,385

 
(45,201
)
Comprehensive income attributable to common shareholders
$
9,630

 
$
19,387

 
$
25,121

 
$
(44,508
)
 
$
9,630



29

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

 
Three Months Ended September 29, 2013
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
237,949

 
$
238,254

 
$
(62,407
)
 
$
413,796

Cost of goods sold

 
139,501

 
130,825

 
(60,522
)
 
209,804

Gross profit

 
98,448

 
107,429

 
(1,885
)
 
203,992

Selling, general and administrative expenses
14,088

 
62,701

 
38,167

 
272

 
115,228

Research and development expenses

 
13,161

 
2,477

 

 
15,638

Restructuring and other impairment charges
828

 
3,834

 
2,422

 

 
7,084

Income (loss) from continuing operations before interest, loss on extinguishments of debt and taxes
(14,916
)
 
18,752

 
64,363

 
(2,157
)
 
66,042

Interest expense
33,492

 
(21,204
)
 
1,660

 

 
13,948

Interest income
3

 
(3
)
 
(144
)
 

 
(144
)
Loss on extinguishments of debt
1,250

 

 

 

 
1,250

Income (loss) from continuing operations before taxes
(49,661
)
 
39,959

 
62,847

 
(2,157
)
 
50,988

Taxes (benefit) on income (loss) from continuing operations
(18,446
)
 
14,261

 
9,962

 
(568
)
 
5,209

Equity in net income of consolidated subsidiaries
76,448

 
48,367

 
319

 
(125,134
)
 

Income from continuing operations
45,233

 
74,065

 
53,204

 
(126,723
)
 
45,779

Operating income (loss) from discontinued operations
364

 

 
(326
)
 

 
38

Taxes (benefit) on income (loss) from discontinued operations
(977
)
 
(170
)
 
156

 

 
(991
)
Income (loss) from discontinued operations
1,341

 
170

 
(482
)
 

 
1,029

Net income (loss)
46,574

 
74,235

 
52,722

 
(126,723
)
 
46,808

Less: Income from continuing operations attributable to noncontrolling interests

 

 
234

 

 
234

Net income (loss) attributable to common shareholders
46,574

 
74,235

 
52,488

 
(126,723
)
 
46,574

Other comprehensive income attributable to common shareholders
24,375

 
30,034

 
21,442

 
(51,476
)
 
24,375

Comprehensive income attributable to common shareholders
$
70,949

 
$
104,269

 
$
73,930

 
$
(178,199
)
 
$
70,949


 
 


30

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

 
Nine Months Ended September 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Condensed
Consolidated
 
(Dollars in thousands)
Net revenues
$

 
$
814,051

 
$
838,171

 
$
(288,398
)
 
$
1,363,824

Cost of goods sold

 
489,694

 
451,408

 
(278,691
)
 
662,411

Gross profit

 
324,357

 
386,763

 
(9,707
)
 
701,413

Selling, general and administrative expenses
30,781

 
235,322

 
159,058

 
231

 
425,392

Research and development expenses

 
37,766

 
6,037

 

 
43,803

Restructuring and other impairment charges

 
8,639

 
7,872

 

 
16,511

Income (loss) from continuing operations before interest, and taxes
(30,781
)
 
42,630

 
213,796

 
(9,938
)
 
215,707

Interest expense
106,794

 
(62,993
)
 
4,849