TELEFLEX INC - Quarter Report: 2014 June (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 June 29, 2014

¨	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 41,396,149 shares of common stock, $1.00 par value, outstanding as of July 21, 2014.

TELEFLEX INCORPORATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 29, 2014

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION

Item 1:	Financial Statements (Unaudited):	2
	Condensed Consolidated Statements of Income for the three and six months ended June 29, 2014 and June 30, 2013	2
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 29, 2014 and June 30, 2013	3
	Condensed Consolidated Balance Sheets as of June 29, 2014 and December 31, 2013	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2014 and June 30, 2013	5
	Condensed Consolidated Statements of Changes in Equity for the six months ended June 29, 2014 and June 30, 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4:	Controls and Procedures	46

PART II — OTHER INFORMATION

Item 1:	Legal Proceedings	48
Item 1A:	Risk Factors	48
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3:	Defaults Upon Senior Securities	48
Item 5:	Other Information	48
Item 6:	Exhibits	49

SIGNATURES		50

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	June 29, 2014			June 30, 2013			June 29, 2014			June 30, 2013
	(Dollars and shares in thousands, except per share)
Net revenues	$	468,105		$	420,059		$	906,651		$	831,936
Cost of goods sold		224,017			210,569			441,404			421,926
Gross profit		244,088			209,490			465,247			410,010
Selling, general and administrative expenses		146,843			116,253			287,140			243,203
Research and development expenses		14,870			16,524			28,932			31,531
Restructuring and other impairment charges		7,623			12,962			15,403			22,121
Income from continuing operations before interest and taxes		74,752			63,751			133,772			113,155
Interest expense		16,062			14,425			31,466			28,618
Interest income		(146	)		(157	)		(333	)		(314	)
Income from continuing operations before taxes		58,836			49,483			102,639			84,851
Taxes on income from continuing operations		10,006			6,082			18,540			13,749
Income from continuing operations		48,830			43,401			84,099			71,102
Operating loss from discontinued operations		(1,594	)		(1,026	)		(1,619	)		(1,784	)
Tax benefit on loss from discontinued operations		(469	)		(260	)		(369	)		(556	)
Loss from discontinued operations		(1,125	)		(766	)		(1,250	)		(1,228	)
Net income		47,705			42,635			82,849			69,874
Less: Income from continuing operations attributable to noncontrolling interest		453			194			639			395
Net income attributable to common shareholders	$	47,252		$	42,441		$	82,210		$	69,479

Earnings per share available to common shareholders:
Basic:
Income from continuing operations	$	1.17		$	1.05		$	2.02		$	1.72
Loss from discontinued operations		(0.03	)		(0.02	)		(0.03	)		(0.03	)
Net income	$	1.14		$	1.03		$	1.99		$	1.69

Diluted:
Income from continuing operations	$	1.04		$	0.99		$	1.81		$	1.64
Loss from discontinued operations		(0.02	)		(0.01	)		(0.03	)		(0.03	)
Net income	$	1.02		$	0.98		$	1.78		$	1.61

Dividends per share	$	0.34		$	0.34		$	0.68		$	0.68

Weighted average common shares outstanding
Basic		41,380			41,115			41,321			41,064
Diluted		46,392			43,429			46,071			43,238

Amounts attributable to common shareholders:
Income from continuing operations, net of tax	$	48,377		$	43,207		$	83,460		$	70,707
Loss from discontinued operations, net of tax		(1,125	)		(766	)		(1,250	)		(1,228	)
Net income	$	47,252		$	42,441		$	82,210		$	69,479

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

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended					Six Months Ended
	June 29, 2014		June 30, 2013			June 29, 2014		June 30, 2013
	(Dollars in thousands)
Net income	$	47,705	$	42,635		$	82,849	$	69,874
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax of $(531) and $4,461, $(3,719) and $(1,353) for the three and six month periods, respectively		1,173		(6,100	)		5,290		(32,805	)
Pension and other postretirement benefit plans adjustment, net of tax of $206, $519, $709 and $1,023 for the three and six month periods, respectively		618		866			1,242		1,956
Derivatives qualifying as hedges, net of tax of $40, $(111), $82, and $(7) for the three and six month periods, respectively		73		(192	)		143		(12	)
Other comprehensive income (loss), net of tax:		1,864		(5,426	)		6,675		(30,861	)
Comprehensive income		49,569		37,209			89,524		39,013
Less: comprehensive income attributable to non-controlling interest		455		2			707		244
Comprehensive income attributable to common shareholders	$	49,114	$	37,207		$	88,817	$	38,769

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

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 29, 2014		December 31, 2013
	(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents	$	237,382	$	431,984
Accounts receivable, net		301,720		295,290
Inventories, net		356,467		333,621
Prepaid expenses and other current assets		38,386		39,810
Prepaid taxes		47,641		36,504
Deferred tax assets		50,497		52,917
Assets held for sale		9,161		10,428
Total current assets		1,041,254		1,200,554
Property, plant and equipment, net		343,408		325,900
Goodwill		1,373,356		1,354,203
Intangible assets, net		1,233,905		1,255,597
Investments in affiliates		1,465		1,715
Deferred tax assets		944		943
Other assets		69,501		70,095
Total assets	$	4,063,833	$	4,209,007

LIABILITIES AND EQUITY
Current liabilities
Current borrowings	$	362,273	$	356,287
Accounts payable		73,533		71,967
Accrued expenses		80,040		74,868
Current portion of contingent consideration		2,959		4,131
Payroll and benefit-related liabilities		66,569		73,090
Accrued interest		9,991		8,725
Income taxes payable		21,817		23,821
Other current liabilities		35,308		22,231
Total current liabilities		652,490		635,120
Long-term borrowings		700,000		930,000
Deferred tax liabilities		517,433		514,715
Pension and postretirement benefit liabilities		102,194		109,498
Noncurrent liability for uncertain tax provisions		56,687		55,152
Other liabilities		50,650		48,506
Total liabilities		2,079,454		2,292,991
Commitments and contingencies
Total common shareholders' equity		1,982,277		1,913,527
Noncontrolling interest		2,102		2,489
Total equity		1,984,379		1,916,016
Total liabilities and equity	$	4,063,833	$	4,209,007

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

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 29, 2014			June 30, 2013
	(Dollars in thousands)

Cash Flows from Operating Activities of Continuing Operations
Net income	$	82,849		$	69,874
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations		1,250			1,228
Depreciation expense		23,997			19,876
Amortization expense of intangible assets		32,102			24,551
Amortization expense of deferred financing costs and debt discount		7,716			7,533
Changes in contingent consideration		(6,617	)		(7,926	)
Stock-based compensation		5,726			5,766
Deferred income taxes, net		2,811			(3,351	)
Other		(2,142	)		(8,243	)
Changes in operating assets and liabilities, net of effects of acquisitions and disposals:
Accounts receivable		640			(18,084	)
Inventories		(16,385	)		(29,354	)
Prepaid expenses and other current assets		2,407			303
Accounts payable and accrued expenses		(1,731	)		1,163
Income taxes receivable and payable, net		(12,462	)		(7,093	)
Net cash provided by operating activities from continuing operations		120,161			56,243

Cash Flows from Investing Activities of Continuing Operations:
Expenditures for property, plant and equipment		(30,850	)		(36,897	)
Proceeds from sale of assets and investments		4,139			-
Payments for businesses and intangibles acquired, net of cash acquired		(28,535	)		(36,954	)
Investment in affiliates		(60	)		(50	)
Net cash used in investing activities from continuing operations		(55,306	)		(73,901	)

Cash Flows from Financing Activities of Continuing Operations:
Proceeds from long-term borrowings		250,000			-
Repayment of long-term borrowings		(480,000	)		-
Debt issuance fees		(3,275	)		-
Proceeds from share based compensation plans and the related tax impacts		2,391			3,892
Payments to noncontrolling interest shareholders		(1,094	)		(736	)
Payments for contingent consideration		-			(9,487	)
Dividends		(28,093	)		(27,944	)
Net cash used in financing activities from continuing operations		(260,071	)		(34,275	)

Cash Flows from Discontinued Operations:
Net cash used in operating activities		(1,531	)		(1,437	)
Net cash used in discontinued operations		(1,531	)		(1,437	)

Effect of exchange rate changes on cash and cash equivalents		2,145			(2,251	)
Net decrease in cash and cash equivalents		(194,602	)		(55,621	)
Cash and cash equivalents at the beginning of the period		431,984			337,039
Cash and cash equivalents at the end of the period	$	237,382		$	281,418

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

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

											Accumulated
					Additional						Other
	Common Stock				Paid In			Retained			Comprehensive			Treasury Stock						Noncontrolling			Total
	Shares		Dollars		Capital			Earnings			Income (Loss)			Shares			Dollars			Interest			Equity
	(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									69,479												395			69,874
Cash dividends ($0.68 per share)									(27,944	)														(27,944	)
Other comprehensive loss												(30,710	)								(151	)		(30,861	)
Distributions to noncontrolling interest shareholders																					(736	)		(736	)
Shares issued under compensation plans		97		97		7,007									(51	)		2,507						9,611
Deferred compensation						(9	)								(1	)		55						46
Balance at June 30, 2013		43,199	$	43,199	$	401,382		$	1,642,995		$	(162,758	)		2,078		$	(125,386	)	$	2,095		$	1,801,527

										Accumulated
					Additional					Other
	Common Stock				Paid In		Retained			Comprehensive			Treasury Stock						Noncontrolling			Total
	Shares		Dollars		Capital		Earnings			Income (Loss)			Shares			Dollars			Interest			Equity
	(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								82,210												639			82,849
Cash dividends ($0.68 per share)								(28,093	)														(28,093	)
Other comprehensive income											6,607									68			6,675
Distributions to noncontrolling interest shareholders																				(1,094	)		(1,094	)
Shares issued under compensation plans		144		144		5,237								(70	)		2,564						7,945
Deferred compensation														(2	)		81						81
Balance at June 29, 2014		43,387	$	43,387	$	414,575	$	1,750,541		$	(104,248	)		1,992		$	(121,978	)	$	2,102		$	1,984,379

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

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of presentation

We prepared the accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated on the same basis as our annual consolidated financial statements.

In the opinion of management, our 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 our 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 our annual consolidated financial statements. The year-end condensed balance sheet data was derived from 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, our quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our 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 six months ended June 29, 2014, the Company has classified such payments as a cash outflow from financing activities under the caption “Proceeds from share based compensation plans and the related tax impacts” within the condensed consolidated statement of cash flows. 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 six months ended June 30, 2013 of $2.3 million to conform to the presentation for the six months ended June 29, 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.

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

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 six months ended June 29, 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 June 29, 2014, the Company recorded revenue and income from continuing operations before taxes related to the Mayo Healthcare business of $9.4 million and $3.2 million, respectively. For the six months ended June 29, 2014, the Company recorded revenue and income from continuing operations before taxes related to the Mayo Healthcare business of $13.5 million and $3.8 million, respectively. Pro forma information is not presented as the Mayo Healthcare operations are not significant to the overall operations of the Company.

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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 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 is estimated at $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

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 will include the relocation of manufacturing operations from certain higher-cost locations to existing lower-cost locations. These actions commenced in the second quarter ended June 29, 2014 and are expected to be substantially completed by the end of 2017.

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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company recorded expenses of $9.5 million for the three and six month ended June 29, 2014 related to the 2014 Manufacturing Footprint Realignment Plan. Of this amount, $8.6 million related to termination benefits and was recorded as restructuring expense and $0.9 million related to accelerated depreciation and other costs and was recorded as cost of sales. As of June 29, 2014, the Company has a restructuring reserve of $8.6 million in connection with the 2014 Manufacturing Footprint Realignment Plan all of which relates to termination benefits.

As the program 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 $8 million to $9 million in connection with implementing the 2014 European Restructuring Plan. The Company anticipates that substantially all of these charges will involve employee termination benefits that will result in future cash outlays. For the three months ended June 29, 2014 the Company reversed $0.6 million of expense after determining certain termination benefit reserves would not be utilized. For the six months ended June 29, 2014, the Company incurred $8.1 million of charges primarily related to termination benefits. As of June 29, 2014, the Company had a reserve of $5.3 million in connection with this project. The Company expects to complete this program in 2014.

2014 Restructuring Charges

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 $2 million to $3 million in restructuring and other impairment charges over the term of these restructuring programs, of which $1.8 million was incurred through June 29, 2014. These programs include costs related to termination benefits, contract termination costs and other exit costs. As of June 29, 2014, the Company has a reserve of $0.4 million in connection with these programs. The Company expects to complete the programs in 2014.

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 formulated a plan related to the integration of the LMA business and the Company’s other businesses. The integration plan 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 June 29, 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	)		(3,231	)		—		(3,372	)
Cash payments		(494	)		(317	)		(70	)		—		(881	)
Foreign currency translation		—			2			(1	)		1		2
Balance at June 29, 2014	$	29		$	-		$	384		$	17	$	430

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the six months ended June 29, 2014, the Company reversed approximately $3.2 million in contract termination costs related to the settlement of a terminated distributor agreement.

The Company does not expect to incur additional costs associated with this program. The Company expects to complete the program in 2015.

2013 Restructuring Charges

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 $10.8 million was incurred through June 29, 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 June 29, 2014, the Company has a reserve of $1.6 million in connection with these programs. The Company expects to complete the programs in 2015.

2012 Restructuring Charges

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. Aside from nominal facility closure costs anticipated in 2014, the Company does not expect to incur additional costs associated with this program. As of June 29, 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 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.

There were no impairment charges recorded for the three and six months ended June 29, 2014 or for the three months ended June 30, 2013.

The restructuring and other impairment charges recognized for the three and six months ended June 29, 2014 and June 30, 2013 consisted of the following:

Three Months Ended June 29, 2014
(in thousands)	Termination Benefits			Facility Closure Costs			Contract Termination Costs			Other Exit Costs		Total
2014 Manufacturing footprint realignment	$	8,577		$	—		$	—		$	—	$	8,577
2014 European restructuring plan		(566	)		—			305			49		(212	)
2014 Restructuring charges		476			—			1,174			131		1,781
LMA restructuring program		(29	)		(154	)		(2,759	)		—		(2,942	)
2013 Restructuring charges		317			—			57			22		396
2012 Restructuring charges		(9	)		34			—			—		25
2011 Restructuring plan		—			(2	)		—			—		(2	)
Total restructuring and other impairment charges	$	8,766		$	(122	)	$	(1,223	)	$	202	$	7,623

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Three Months Ended June 30, 2013
(in thousands)	Termination Benefits			Facility Closure Costs			Contract Termination Costs			Other Exit Costs		Total
LMA restructuring program	$	802		$	293		$	2,839		$	7	$	3,941
2013 Restructuring charges		1,131			—			3,391			2,828		7,350
2012 Restructuring charges		1,216			102			293			5		1,616
2011 Restructuring plan		—			—			—			—		—
2007 Arrow integration program		—			55			—			—		55
Total restructuring and other impairment charges	$	3,149		$	450		$	6,523		$	2,840	$	12,962


Six Months Ended June 29, 2014
(in thousands)	Termination Benefits			Facility Closure Costs			Contract Termination Costs			Other Exit Costs		Total
2014 Manufacturing footprint realignment	$	8,577		$	—		$	—		$	—	$	8,577
2014 European restructuring plan		7,752			—			305			49		8,106
2014 Restructuring charges		476			—			1,174			131		1,781
LMA restructuring program		(29	)		(112	)		(3,231	)		—		(3,372	)
2013 Restructuring charges		485			—			57			22		564
2012 Restructuring charges		(619	)		354			—			—		(265	)
2011 Restructuring plan		—			12			—			—		12
Total restructuring and other impairment charges	$	16,642		$	254		$	(1,695	)	$	202	$	15,403


Six Months Ended June 30, 2013
(in thousands)	Termination Benefits			Facility Closure Costs			Contract Termination Costs			Other Exit Costs		Total
LMA restructuring program	$	2,826		$	374		$	3,281		$	115	$	6,596
2013 Restructuring charges		1,552			—			3,391			2,887		7,830
2012 Restructuring charges		2,666			102			293			5		3,066
2007 Arrow integration program		—			135			—			—		135
		7,044			611			6,965			3,007		17,627
Impairment charges		—			—			—			4,494		4,494
Total restructuring and other impairment charges	$	7,044		$	611		$	6,965		$	7,501	$	22,121

Termination benefits include employee severance and retention 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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Restructuring and other impairment charges by reportable segment for the three and six months ended June 29, 2014 and June 30, 2013 are set forth in the following table:

	Three Months Ended					Six Months Ended
	June 29, 2014			June 30, 2013		June 29, 2014		June 30, 2013
	(Dollars in thousands)					(Dollars in thousands)
Restructuring and other impairment charges
Vascular North America	$	5,887		$	130	$	5,962	$	627
Anesthesia/Respiratory North America		1,151			762		1,178		2,669
Surgical North America		—			2,800		—		7,294
EMEA		(1,575	)		7,913		6,315		9,207
Asia		519			147		597		245
OEM		—			588		—		588
All other		1,641			622		1,351		1,491
Total restructuring and other impairment charges	$	7,623		$	12,962	$	15,403	$	22,121

Note 5 — Inventories, net

Inventories as of June 29, 2014 and December 31, 2013 consisted of the following:

	June 29, 2014			December 31, 2013
	(Dollars in thousands)
Raw materials	$	74,790		$	70,209
Work-in-process		59,412			53,672
Finished goods		255,244			242,113
		389,446			365,994
Less: Inventory reserve		(32,979	)		(32,373	)
Inventories, net	$	356,467		$	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 six months ended June 29, 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		—			(82	)		—		(279	)		3,636		(108	)		3,167

Balance as of June 29, 2014
Goodwill		474,044			167,113			250,506		373,138			156,568		284,115			1,705,484
Accumulated impairment losses		(219,527	)		(107,073	)		—		—			—		(5,528	)		(332,128	)
	$	254,517		$	60,040		$	250,506	$	373,138		$	156,568	$	278,587		$	1,373,356

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table provides information as of June 29, 2014 and December 31, 2013 regarding the gross carrying amount of, and accumulated amortization relating to, intangible assets, net:

	Gross Carrying Amount				Accumulated Amortization
	June 29, 2014		December 31, 2013		June 29, 2014			December 31, 2013
	(Dollars in thousands)
Customer relationships	$	638,315	$	628,020	$	(183,363	)	$	(168,223	)
In-process research and development		68,786		68,786		—			—
Intellectual property		435,811		435,869		(133,795	)		(118,086	)
Distribution rights		16,761		16,797		(14,726	)		(14,592	)
Trade names		408,050		407,879		(2,089	)		(1,148	)
Noncompete agreements		337		337		(182	)		(42	)
	$	1,568,060	$	1,557,688	$	(334,155	)	$	(302,091	)

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

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 June 29, 2014, the Company has recorded assets at risk of approximately $41.0 million related to this investment.

Amortization expense related to intangible assets was $16.1 million and $12.1 million for the three months ended June 29, 2014 and June 30, 2013, respectively, and $32.1 million and $24.6 million for the six months ended June 29, 2014 and June 30, 2013, respectively. Estimated annual amortization expense for the remainder of 2014 and the next five succeeding years is as follows (dollars in thousands):

2014	$	33,000
2015		55,500
2016		54,500
2017		54,000
2018		53,500
2019		51,000

Note 7 — Borrowings

The components of long-term debt at June 29, 2014 and December 31, 2013 are as follows:

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	June 29, 2014			December 31, 2013
	(Dollars in thousands)
Senior Credit Facility:
Revolving credit facility, at a rate of 2.15% at June 29, 2014, due 7/16/2018	$	200,000		$	680,000
3.875% Convertible Senior Subordinated Notes		400,000			400,000
6.875% Senior Subordinated Notes due 2019		250,000			250,000
5.25% Senior Notes due 2024		250,000			-
Total borrowings		1,100,000			1,330,000
Less: Unamortized debt discount on 3.875% Convertible Senior Subordinated Notes		(42,427	)		(48,413	)
		1,057,573			1,281,587
Current portion of borrowings		(357,573	)		(351,587	)
	$	700,000		$	930,000

5.25% Senior Notes

On May 21, 2014, the Company issued $250.0 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 $4.7 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.

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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 June 29, 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 our results of operations and liquidity. The classification of the Convertible Notes as a current liability had no impact on our financial covenants.

Fair Value of Long-Term Debt

The carrying amount of long-term debt reported in the consolidated balance sheet as of June 29, 2014 is $1,057.6 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 June 29, 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	$	968,108
Level 2		457,051
Total	$	1,425,159

Note 8 — Financial instruments

The Company uses derivative instruments for risk management purposes. Forward exchange 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 June 29, 2014 and December 31, 2013:

June 29,

2014

Fair Value

December 31,

2013

Fair Value

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	(Dollars in thousands)
Asset derivatives:
Foreign exchange contracts:
Prepaid expenses and other current assets	$	902	$	—
Total asset derivatives	$	902	$	—

Liability derivatives:
Foreign exchange contracts:
Other current liabilities	$	621	$	—
Total liability derivatives	$	621	$	—

The total notional amount for all open foreign exchange contracts as of June 29, 2014 is approximately $42.6 million. As of December 31, 2013, the Company had no open forward rate exchange contracts.

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 six months ended June 29, 2014 and June 30, 2013:

	After Tax Gain/(Loss) Recognized in OCI
	Three Months Ended					Six Months Ended
	June 29, 2014		June 30, 2013			June 29, 2014		June 30, 2013
	(Dollars in thousands)
Foreign exchange contracts	$	73	$	(192	)	$	143	$	(12	)
Total	$	73	$	(192	)	$	143	$	(12	)

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 six months ended June 29, 2014 and June 30, 2013.

Based on exchange rates at June 29, 2014, approximately $0.1 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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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. Our allowance for doubtful accounts was $10.2 million and $10.7 million at June 29, 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.

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 June 29, 2014 and December 31, 2013 are as follows:

	June 29, 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 June 29, 2014 and December 31, 2013, respectively) in Spain, Italy, Greece and Portugal(1)	$	95,653		$	97,852
Percentage of total net current and long-term accounts receivable		30.8	%		31.0	%

(1)	The long-term portion of accounts receivable, net at June 29, 2014 and December 31, 2013 was $12.7 million and $17.6 million, respectively.

For the six months ended June 29, 2014 and June 30, 2013, net revenues from customers in Spain, Italy, Greece and Portugal were $79.6 million and $73.7 million, respectively.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 June 29, 2014 and December 31, 2013:

	Total carrying value at June 29, 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	$	6,535	$	6,535	$	—	$	—
Derivative assets		902		—		902		—
Derivative liabilities		621		—		621		—
Contingent consideration liabilities		13,696		—		—		13,696

	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 six months ended June 29, 2014.

The following table provides information regarding changes in Level 3 financial liabilities related to contingent consideration in connection with various Company acquisitions during the six months ended June 29, 2014:

	Contingent consideration
	2014
	(Dollars in thousands)
Balance - December 31, 2013	$	20,313
Revaluations		(6,617	)
Balance - June 29, 2014	$	13,696

For the three and six months ended June 29, 2014, the Company recorded net reductions to contingent consideration liabilities of $4.4 million and $6.7 million, respectively, and for the three and six months ended June 30, 2013, the Company recorded reductions to contingent consideration liabilities of $6.6 million and $8.1 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 exchange contracts. The Company uses forward rate exchange contracts to manage currency transaction exposure. The fair value of the foreign currency forward exchange 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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

It is estimated that milestone payments will occur in 2015 and may extend until 2018 or later. As of June 29, 2014, the range of undiscounted amounts the Company could be required to pay for 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 milestone payments is based on several factors including:

—	estimated cash flows projected from the success of market launches;

—	the estimated time and resources needed to complete the development of acquired technologies;

—	the uncertainty of obtaining regulatory approvals within the required time periods; and

—	the risk adjusted discount rate for fair value measurement.

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 June 29, 2014:

	Valuation Technique	Unobservable Input	Range (Weighted Average)
Contingent consideration	Discounted cash flow	Discount rate	1.6%—10% (8.6%)
		Probability of payment	0%—100% (32.0%)

As of June 29, 2014, of the $13.7 million of total recorded liabilities for contingent consideration, the Company has recorded approximately $3.0 million in Current portion of contingent consideration and the remaining $10.7 million in 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 June 29, 2014, no shares have been purchased under this Board authorization.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table provides a reconciliation of basic to diluted weighted average shares outstanding:

	Three Months Ended				Six Months Ended
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
	(Shares in thousands)
Basic		41,380		41,115		41,321		41,064
Dilutive effect of share based awards		413		374		442		384
Dilutive effect of 3.875% Convertible Notes and warrants		4,599		1,940		4,308		1,790
Diluted		46,392		43,429		46,071		43,238

Weighted average shares that were antidilutive and therefore not included in the calculation of earnings per share were approximately 6.4 million and 6.5 million for the three and six months ended June 29, 2014 respectively, and approximately 7.9 million for both the three and six month periods ended June 30, 2013, respectively.

The Convertible Notes are included in the diluted net income per share calculation only during periods in which the average market price of our common stock was above the applicable conversion price of the Convertible Notes, or $61.32 per share, and, therefore, the impact of conversion would not be anti-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.

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 2.7 million and 2.6 million for the three and six months ended June 29, 2014, respectively and 1.5 million and 1.4 million for the three and six months ended June 30, 2013, respectively. The treasury stock method is applied when the warrants are in-the-money, assuming 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 1.9 million and 1.7 million for the three and six months ended June 29, 2014, respectively and 0.4 million and 0.3 million for the three and six months ended June 30, 2013, respectively.

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 six months ended June 29, 2014 and June 30, 2013:

	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, 2013	$	—		$	(97,037	)	$	(13,818	)	$	(110,855	)
Other comprehensive income (loss) before reclassifications		233			(256	)		5,222			5,199
Amounts reclassified from accumulated other comprehensive income (loss)		(90	)		1,498			—			1,408
Net current-period other comprehensive income		143			1,242			5,222			6,607
Balance at June 29, 2014	$	143		$	(95,795	)	$	(8,596	)	$	(104,248	)

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

)