UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2020

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 and zip code)

(610) 225-6800

(Registrant’s telephone number, including area code)

(None)

(Former Name, Former Address and Former Fiscal Year,

If Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
	Title of each class	Trading Symbol(s)	Name of each exchange on which registered
	Common Stock, par value $1.00 per share	TFX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

The registrant had 46,516,030 shares of common stock, par value $1.00 per share, outstanding as of July 28, 2020.

TELEFLEX INCORPORATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 28, 2020

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1:	Financial Statements (Unaudited):	2
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Changes in Equity	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4:	Controls and Procedures	30
PART II — OTHER INFORMATION
Item 1:	Legal Proceedings	32
Item 1A:	Risk Factors	32
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3:	Defaults Upon Senior Securities	33
Item 4:	Mine Safety Disclosures	33
Item 5:	Other Information	33
Item 6:	Exhibits	34
SIGNATURES		35

1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended				Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	(Dollars and shares in thousands, except per share)
Net revenues	$	567,034	$	652,507	$	1,197,676	$	1,266,091
Cost of goods sold	288,662		300,269		585,680		589,883
Gross profit	278,372		352,238		611,996		676,208
Selling, general and administrative expenses	191,193		215,500		338,989		422,421
Research and development expenses	29,364		27,595		56,760		54,745
Restructuring and impairment charges	19,005		1,685		20,351		19,080
Gain on sale of assets	—		—		—		(2,739)
Income from continuing operations before interest and taxes	38,810		107,458		195,896		182,701
Interest expense	15,682		20,758		31,121		43,450
Interest income	(163)		(472)		(742)		(811)
Income from continuing operations before taxes	23,291		87,172		165,517		140,062
Taxes on income from continuing operations	11,848		3,844		22,922		14,816
Income from continuing operations	11,443		83,328		142,595		125,246
Operating income (loss) from discontinued operations	22		61		18		(1,282)
Tax benefit (expense) on operating loss from discontinued operations	9		14		7		(308)
Income (loss) from discontinued operations	13		47		11		(974)
Net income	$	11,456	$	83,375	$	142,606	$	124,272
Earnings per share:
Basic:
Income from continuing operations	$	0.25	$	1.80	$	3.07	$	2.72
Income (loss) from discontinued operations	—		0.01		—		(0.02)
Net income	$	0.25	$	1.81	$	3.07	$	2.70
Diluted:
Income from continuing operations	$	0.24	$	1.77	$	3.02	$	2.67
Loss from discontinued operations	—		—		—		(0.03)
Net income	$	0.24	$	1.77	$	3.02	$	2.64
Weighted average common shares outstanding
Basic	46,442		46,172		46,412		46,111
Diluted	47,242		47,036		47,237		46,989

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

2

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	(Dollars in thousands)
Net income	$	11,456	$	83,375	$	142,606	$	124,272
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax of $$2,295, $(298), $(5,286), and $(1,759) for the three and six months periods, respectively	17,654		12,568		(545)		12,332
Pension and other postretirement benefit plans adjustment, net of tax of $(404), $(446), $(926), and $(836) for the three and six months periods, respectively	1,345		1,459		3,034		2,688
Derivatives qualifying as hedges, net of tax of $64, $83, $436, and $82 for the three and six months periods, respectively	(1,095)		755		(4,912)		158
Other comprehensive income (loss), net of tax:	17,904		14,782		(2,423)		15,178
Comprehensive income	$	29,360	$	98,157	$	140,183	$	139,450

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

3

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 28, 2020		December 31, 2019
	(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents	$	553,535	$	301,083
Accounts receivable, net	374,886		418,673
Inventories	514,755		476,557
Prepaid expenses and other current assets	94,381		97,943
Prepaid taxes	7,060		12,076
Total current assets	1,544,617		1,306,332
Property, plant and equipment, net	432,401		430,719
Operating lease assets	101,982		113,160
Goodwill	2,343,561		2,245,305
Intangible assets, net	2,260,863		2,156,285
Deferred tax assets	5,589		5,572
Other assets	76,117		52,447
Total assets	$	6,765,130	$	6,309,820
LIABILITIES AND EQUITY
Current liabilities
Current borrowings	$	83,000	$	50,000
Accounts payable	107,140		102,916
Accrued expenses	103,557		100,466
Current portion of contingent consideration	25,243		148,090
Payroll and benefit-related liabilities	80,602		115,981
Accrued interest	6,887		5,514
Income taxes payable	18,340		6,692
Other current liabilities	31,846		33,396
Total current liabilities	456,615		563,055
Long-term borrowings	2,328,791		1,858,943
Deferred tax liabilities	488,968		439,558
Pension and postretirement benefit liabilities	60,866		82,719
Noncurrent liability for uncertain tax positions	12,381		10,294
Noncurrent contingent consideration	24,036		71,818
Noncurrent operating lease liabilities	91,917		101,372
Other liabilities	204,154		202,741
Total liabilities	3,667,728		3,330,500
Commitments and contingencies
Total shareholders' equity	3,097,402		2,979,320
Total liabilities and shareholders' equity	$	6,765,130	$	6,309,820

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

4

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 28, 2020		June 30, 2019
	(Dollars in thousands)
Cash flows from operating activities of continuing operations:
Net income	$	142,606	$	124,272
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations	(11)		974
Depreciation expense	34,461		31,966
Intangible asset amortization expense	78,638		75,285
Deferred financing costs and debt discount amortization expense	1,984		2,249
Gain on sale of assets	—		(2,739)
Fair value step up of acquired inventory sold	1,707		—
Changes in contingent consideration	(29,951)		25,456
Impairment of long-lived assets	—		6,911
Stock-based compensation	8,482		12,700
Deferred income taxes, net	1,055		(5,495)
Payments for contingent consideration	(79,771)		(26,092)
Interest benefit on swaps designated as net investment hedges	(9,805)		(8,799)
Other	(18,981)		4,272
Changes in assets and liabilities, net of effects of acquisitions and disposals:
Accounts receivable	45,843		(19,747)
Inventories	(34,875)		(33,970)
Prepaid expenses and other assets	11,819		(6,381)
Accounts payable, accrued expenses and other liabilities	(26,449)		(6,231)
Income taxes receivable and payable, net	7,257		(17,347)
Net cash provided by operating activities from continuing operations	134,009		157,284
Cash flows from investing activities of continuing operations:
Expenditures for property, plant and equipment	(39,052)		(56,107)
Proceeds from sale of assets	400		1,178
Payments for businesses and intangibles acquired, net of cash acquired	(265,895)		(1,025)
Net interest proceeds on swaps designated as net investment hedges	9,986		8,330
Net cash used in investing activities from continuing operations	(294,561)		(47,624)
Cash flows from financing activities of continuing operations:
Proceeds from new borrowings	1,010,000		25,000
Reduction in borrowings	(500,000)		(52,500)
Debt extinguishment, issuance and amendment fees	(7,727)		(4,703)
Net proceeds from share based compensation plans and the related tax impacts	2,668		7,829
Payments for contingent consideration	(60,947)		(111,928)
Dividends paid	(31,558)		(31,347)
Net cash provided by (used in) financing activities from continuing operations	412,436		(167,649)
Cash flows from discontinued operations:
Net cash (used in) provided by operating activities	(317)		2,799
Net cash (used in) provided by discontinued operations	(317)		2,799
Effect of exchange rate changes on cash and cash equivalents	885		1,925
Net increase (decrease) in cash and cash equivalents	252,452		(53,265)
Cash and cash equivalents at the beginning of the period	301,083		357,161
Cash and cash equivalents at the end of the period	$	553,535	$	303,896

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

5

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

	Common Stock			Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total
	Shares	Dollars								Shares	Dollars
	(Dollars and shares in thousands, except per share)
Balance at December 31, 2019	47,536	$	47,536	$	616,980	$	2,824,916	$	(344,392)	1,182	$	(165,720)	$	2,979,320
Cumulative effect adjustment resulting from the adoption of new accounting standards						(791)							(791)
Net income						131,150							131,150
Cash dividends ($0.34 per share)						(15,767)							(15,767)
Other comprehensive loss								(20,327)					(20,327)
Shares issued under compensation plans	24	24		(3,074)						(37)	1,748		(1,302)
Deferred compensation				383						(5)	358		741
Balance at March 29, 2020	47,560	47,560		614,289		2,939,508		(364,719)		1,140	(163,614)		3,073,024
Net income						11,456							11,456
Cash dividends ($0.34 per share)						(15,791)							(15,791)
Other comprehensive income								17,904					17,904
Shares issued under compensation plans	35	35		10,516						(3)	175		10,726
Deferred compensation				—						(1)	83		83
Balance at June 28, 2020	47,595	$	47,595	$	624,805	$	2,935,173	$	(346,815)	1,136	$	(163,356)	$	3,097,402

	Common Stock			Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total
	Shares	Dollars								Shares	Dollars
	(Dollars and shares in thousands, except per share)
Balance at December 31, 2018	47,248	$	47,248	$	574,761	$	2,427,599	$	(341,085)	1,232	$	(168,545)	$	2,539,978
Cumulative effect adjustment resulting from the adoption of new accounting standards						(1,321)							(1,321)
Net income						40,897							40,897
Cash dividends ($0.34 per share)						(15,650)							(15,650)
Other comprehensive income								396					396
Shares issued under compensation plans	75	75		3,094						(40)	2,029		5,198
Deferred compensation				127						(4)	253		380
Balance at March 31, 2019	47,323	47,323		577,982		2,451,525		(340,689)		1,188	(166,263)		2,569,878
Net income						83,375							83,375
Cash dividends ($0.34 per share)						(15,697)							(15,697)
Other comprehensive income								14,782					14,782
Shares issued under compensation plans	77	77		12,252						(2)	177		12,506
Balance as of June 30, 2019	47,400	$	47,400	$	590,234	$	2,519,203	$	(325,907)	1,186	$	(166,086)	$	2,664,844

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

6

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of presentation

The accompanying unaudited condensed consolidated financial statements of Teleflex Incorporated and its subsidiaries (“we,” “us,” “our" and “Teleflex”) are prepared on the same basis as its annual consolidated financial statements.

In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for the fair statement of the financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America ("GAAP") and Rule 10-01 of Securities and Exchange Commission ("SEC") Regulation S-X, which sets forth the instructions for the form and content of presentation of financial statements included in Form 10-Q. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions impacted by the COVID-19 pandemic, which are described in more detail in the 'Risks and uncertainties' section below. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.

In accordance with applicable accounting standards and as permitted by Rule 10-01 of Regulation S-X, the accompanying condensed consolidated financial statements do not include all of the information and footnote disclosures that are required to be included in our annual consolidated financial statements. Therefore, our quarterly condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. For the three and six months ended June 28, 2020 intangible asset amortization expense of $21.1 million and $42.0 million, respectively, is included within costs of good sold. For the three and six months ended June 30, 2019, we reclassified intangible asset amortization expense of $20.7 million and $41.5 million, respectively, from selling, general and administrative expenses to cost of goods sold for comparability.

Risks and Uncertainties

We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict due to the rapidly evolving environment and continued uncertainties created by the COVID-19 pandemic. Among other things, the response to the COVID-19 pandemic has had the effect of reducing the number of elective procedures being carried out by our customers, thereby reducing demand for products used in elective procedures, while creating an increase in demand for products used in the treatment of patients with COVID-19. The COVID-19 pandemic has significantly impacted economic activity and markets around the world through government-mandated and self-imposed shut-downs in many countries, which were implemented to protect individuals and control the spread of COVID-19. If the pandemic continues and conditions worsen, it could negatively impact our business, results of operations, financial condition and liquidity in numerous ways, including, but not limited to, lower revenues in our product categories dependent on elective procedures; further disruption in the manufacture of our products including increased manufacturing and distribution costs; extended delays in or defaults on payments of outstanding receivables; and increased volatility and pricing in capital markets. Further, the COVID-19 pandemic may cause disruption to our suppliers or their suppliers and/or the distribution of our products, whether through our direct sales force or our distributors.

The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our employees, contractors, suppliers, customers and other business partners, all of which are uncertain and cannot be predicted. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain.

Note 2 — Recently issued accounting standards

In June 2016, the Financial Accounting Standards Board ("FASB") issued new guidance that changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The new guidance requires the recognition of an allowance that reflects the current estimate of

7

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

credit losses expected to be incurred over the life of the financial asset, based not only on historical experience and current conditions, but also on reasonable forecasts. The main objective of the new guidance is to provide financial statement users with more useful information in making decisions about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Under previous guidance, an entity reflects credit losses on financial assets measured on an amortized cost basis only when it is probable that losses have been incurred, generally considering only past events and current conditions in determining the incurred loss. We adopted the new standard on January 1, 2020 using a modified retrospective transition approach by recognizing a cumulative-effect adjustment of $0.8 million to reduce our opening balance of retained earnings as of the adoption date. Prior period amounts have not been adjusted and continue to reflect our historical accounting.

In December 2019, the FASB issued new guidance that simplifies various aspects of accounting for income taxes including those related to the step-up in the tax basis of goodwill, intraperiod tax allocations and the interim period effects of changes in tax laws or rates. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The majority of the modifications under the new guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings on January 1, 2021. We are currently evaluating the impact the guidance will have on our consolidated financial statements and related disclosures.

In March 2020, the SEC adopted final rules that amend the financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities in Rule 3-10 of Regulation S-X. The SEC amended its financial disclosure requirements for companies that conduct registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. The SEC narrowed the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlined the alternative disclosures required in lieu of those statements. The SEC replaced the requirement for separate financial statements of affiliates whose securities are pledged as collateral for registered securities with requirements similar to those adopted for subsidiary issuers and guarantors. The new disclosures may be located, in all cases, outside of the financial statements. The rule is effective January 4, 2021, but earlier compliance is permitted. We adopted the new rule during the first quarter of 2020. The disclosures are now located within the Liquidity and Capital Resources section of Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.

From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by us as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. We have assessed the recently issued guidance that is not yet effective and, unless otherwise indicated above, believes the new guidance will not have a material impact on the consolidated results of operations, cash flows or financial position.

Note 3 - Net revenues

We primarily generate revenue from the sale of medical devices including single use disposable devices and, to a lesser extent, reusable devices, instruments and capital equipment. Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; this occurs upon the transfer of control of the products. Generally, transfer of control to the customer occurs at the point in time when our products are shipped from the manufacturing or distribution facility. For our Original Equipment and Development Services ("OEM") segment, most revenue is recognized over time because the OEM segment generates revenue from the sale of custom products that have no alternative use and we have an enforceable right to payment to the extent that performance has been completed. We market and sell products through our direct sales force and distributors to customers within the following end markets: (1) hospitals and healthcare providers; (2) other medical device manufacturers; and (3) home care providers such as pharmacies, which comprised 86%, 11% and 3% of consolidated net revenues, respectively, for the six months ended June 28, 2020. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. With respect to the custom products sold in the OEM segment, revenue is measured using the units produced output method. Payment is generally due 30 days from the date of invoice.

8

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table disaggregates revenue by global product category for the three and six months ended June 28, 2020 and June 30, 2019.

	Three Months Ended				Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	(Dollars in thousands)
Vascular access	$	164,958	$	153,647	$	315,214	$	297,544
Anesthesia	64,867		85,723		140,569		165,975
Interventional	82,594		104,785		182,525		207,969
Surgical	67,275		95,570		142,707		182,289
Interventional urology	40,094		67,952		114,286		127,683
OEM	55,832		56,428