EX-99.2 4 w43801exv99w2.htm PRO FORMA FINANCIAL INFORMATION exv99w2
 

Exhibit 99.2
TELEFLEX INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On October 1, 2007, Teleflex Incorporated (“the Company”) acquired all of the outstanding capital stock of Arrow International, Inc. (“Arrow”) for approximately $2.1 billion. Arrow is a global provider of catheter-based access and therapeutic products for critical and cardiac care. The acquisition was financed from:
         
    Total  
    (in thousands)  
Cash on hand
  $ 423,000  
 
       
Company Credit Agreement:
       
Term loan, five year term, rate of LIBOR + 150 basis points
    1,400,000  
$400 million Revolving credit facility, five year term, rate of LIBOR + 150 basis points
    72,000  
Note Purchase Agreement:
       
7.62% Series A Senior Notes, due 10/1/2012
    130,000  
7.94% Series B Senior Notes, due 10/1/2014
    40,000  
Floating Rate Series C Senior Notes, due 10/1/2012
    30,000  
 
     
 
       
Total
  $ 2,095,000  
 
     
In connection with the acquisition and new borrowings, the Company also:
    Executed an interest rate swap for $600 million of the term loan from a floating rate to a fixed rate of 6.25%.
 
    Retired notes consisted of: $30,000,000 7.40% Senior Notes due November 15, 2007 and $30,000,000 6.80% Senior Notes, Series B due December 15, 2008.
 
    Amended the interest rates on existing notes as follows:
  o   7.66% in respect of the $150,000,000 Series 2004-1 Tranche A Senior Notes due 2011
 
  o   8.14% in respect of the $100,000,000 Series 2004-1 Tranche B Senior Notes due 2014
 
  o   8.46% in respect of the $100,000,000 Series 2004-1 Tranche C Senior Notes due 2016
 
  o   7.82% in respect of the $50,000,000 Senior Notes due October 25, 2012.
The accompanying unaudited pro forma condensed combined balance sheet combines the historical balance sheets of the Company as of September 30, 2007 and Arrow as of August 31, 2007, under the purchase method of accounting, giving effect to the transaction as if it had occurred on September 30, 2007.
The accompanying unaudited pro forma condensed combined statements of income combine the historical statements of income of the Company for the fiscal period December 26, 2005 to December 31, 2006, the Company’s fiscal year, and the nine month interim period January 1, 2007 to September 30, 2007 with Arrow’s historical statement of income for the fiscal period December 1, 2005 to November 30, 2006, and the nine month interim period from December 1, 2006 to August 31, 2007, respectively. Arrow’s fiscal year end is August 31. In order to present Arrow’s historical statements in accordance with SEC guidelines, the fiscal period for Arrow was derived from their August 31, 2006 fiscal year end historical financials, deducting the three month period ending November 30, 2005 and adding the three month period ending November 30, 2006. Arrow’s nine month interim period was derived from their August 31, 2007 fiscal year end historical financials and deducting the three month period ending November 30, 2006. The pro forma statements of income presented gives effect to the transaction as if it had occurred at the beginning of the Company’s fiscal period, December 26, 2005.
The costs related to the integration of Arrow’s operations into the Company are not included in the unaudited pro forma combined balance sheet as of September 30, 2007. We have not yet finalized the integration plan for Arrow, as such, we have not yet finalized our estimate of integration costs. We expect a significant portion of these costs will require cash outlays and will primarily relate to severance and other integration-related costs, including the elimination of excess capacity and workforce reductions. To the extent that the costs relate to actions that impact Arrow’s employees and operations, such costs will be accounted for as a cost of the Acquisition and will be included in goodwill. To the extent that the costs relate to actions that impact the Company’s employees and operations, such costs will be accounted for as a charge to earnings in the periods that the related actions are taken. In addition, the pro forma combined balance sheet does not reflect Arrow’s change in control costs related to the vesting of share based awards and management bonuses of approximately $42.9 million and consulting and legal fees of approximately $14.0 million related to Arrow’s review of strategic alternatives to enhance shareholder value, these costs and fees were paid on October 1, 2007.
The unaudited pro forma combined statements of income do not include the costs of integrating Arrow, nor do they include the estimated annual synergies expected to be realized upon completion of the integration of Arrow, nor do they include the nonrecurring charges that the Company will be recording in its financials in the next twelve months for the $35.8 million inventory step-up, the $30.0 million in-process research and development write-off that is charged to expense as of the date of the combination and the $1.0 million financing costs paid to third parties for the amended notes.

F-1


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet as of September 30, 2007 does not include the anticipated deferred tax liability related to the change in position by Teleflex management with respect to previously untaxed foreign earnings of Arrow which historically were considered permanently reinvested. The Company has not yet finalized its analysis, however the deferred tax liability will be accounted for as a cost of the acquisition and will be included in goodwill.
The Company’s taxes on income from continuing operations of $140.7 million for 2007 includes discrete income tax charges incurred by Teleflex in anticipation of the Arrow acquisition during the third quarter of 2007. Specifically, in connection with funding the acquisition of Arrow, the Company (i) repatriated approximately $197.0 million of cash from foreign subsidiaries which had previously been deemed to be permanently reinvested in the respective foreign jurisdictions; and (ii) changed its position with respect to certain additional previously untaxed foreign earnings to treat these earnings as no longer permanently reinvested. These items resulted in a discrete income tax charge during the third quarter of 2007 of approximately $90.2 million.
The unaudited pro forma condensed combined financial statements are based on the estimates and assumptions set forth in the notes to such statements, which are preliminary and have been made solely for purposes of developing such pro forma information. A preliminary allocation of the costs to acquire Arrow has been made to certain of the assets of Arrow in the accompanying unaudited pro forma combined financial statements based on preliminary estimates. The Company is continuing to assess the estimated fair values of the assets and liabilities acquired. Accordingly, the final allocation may be different from the amounts reflected in the accompanying unaudited pro forma combined financial statements.
The unaudited pro forma condensed combined financial statements described above should be read in conjunction with the historical financial statements of the Company and Arrow and the related notes thereto. The unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the transaction taken place on the dates noted, or the future financial position or operating results of the combined company.
Financing Arrangements
The Company incurred the following financing costs (in thousands):
                 
            Total  
Company Credit Agreement:
               
Term loan facility
          $ 14,540  
Revolving credit facility
            3,707  
Note Purchase Agreement:
               
7.62% Series A Senior Notes
            803  
7.94% Series B Senior Notes
            247  
Floating Rate Series C Senior Notes
            185  
Amended Notes — paid to creditor
            1,083  
 
             
Deferred Financing Costs
          $ 20,565  
 
             
For the nine month pro forma condensed combined income statement interest expense (based on the stated interest rates), amortization of financing costs and the potential impact from a 1/8% change in interest rates on debt that is not at a fixed rate was determined as follows (in thousands):
                                 
    Interest     Amortization of             1/8%  
    Expense     Financing Costs     Total     Variance  
Company Credit Agreement:
                               
Term loan facility
  $ 72,305     $ 2,482     $ 74,787     $ 1,171  
Revolving credit facility
    15,006       556       15,562       270  
Note Purchase Agreement:
                               
7.62% Series A Senior Notes
    7,434       121       7,555        
7.94% Series B Senior Notes
    2,385       26       2,411        
Floating Rate Series C Senior Notes
    1,842       28       1,870       27  
Amended Notes
    7,261       155       7,416        
 
                       
 
    106,233       3,368       109,601       1,468  
Interest Rate Swap at 6.25%
    (5,948 )           (5,948 )     (567 )
 
                       
Total
  $ 100,285     $ 3,368     $ 103,653     $ 901  
 
                       

F-2


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
For the twelve month pro forma condensed combined income statement interest expense (based on the stated interest rates), amortization of financing costs and the potential impact from a 1/8% change in interest rates on debt that is not at a fixed rate was determined as follows (in thousands):
                                 
    Interest     Amortization of             1/8%  
    Expense     Financing Costs     Total     Variance  
Company Credit Agreement:
                               
Term loan facility
  $ 93,714     $ 3,614     $ 97,328     $ 1,708  
Revolving credit facility
    19,455       741       20,196       360  
Note Purchase Agreement:
                               
7.62% Series A Senior Notes
    9,912       161       10,073        
7.94% Series B Senior Notes
    3,180       35       3,215        
Floating Rate Series C Senior Notes
    2,399       37       2,436       36  
Amended Notes
    9,680       206       9,886        
 
                       
 
    138,340       4,794       143,134       2,104  
Interest Rate Swap at 6.25%
    (5,992 )           (5,992 )     (756 )
 
                       
Total
  $ 132,348     $ 4,794     $ 137,142     $ 1,348  
 
                       
Purchase Accounting
The components of acquisition cost are as follows (in millions):
         
Purchase price to acquire all of Arrow’s outstanding common stock
  $ 2,094.6  
Transaction costs incurred by Teleflex, consisting primarily of fees and expenses of investment bankers, attorney’s and accountants
    10.8  
 
     
 
       
Total acquisition cost
  $ 2,105.4  
 
     
The preliminary allocation of acquisition cost to the Arrow assets and liabilities acquired under the purchase method of accounting is as follows (in millions):
                 
Preliminary Purchase Price Allocation
               
Net assets of Arrow per historical balance sheet as of August 31, 2007
    (1 )(a)   $ 571.2  
Adjustments to record net assets acquired based on estimated fair values:
               
Accounts receivable, net
    (1 )(b)     (0.2 )
Inventories
    (1 )(c)(d)     35.8  
Property, plant and equipment, net
    (1 )(c)     (0.9 )
Incremental intangible assets
    (1 )(c)(e)     615.8  
Indefinite lived intangible assets
    (1 )(c)(e)     249.0  
In-process research and development
    (1 )(c)(e)     30.0  
Deferred income taxes — noncurrent
    (1 )(f)     (332.2 )
FIN 48
    (1 )(g)     (4.9 )
Incremental goodwill recorded
            941.8  
 
             
Total acquisition cost
          $ 2,105.4  
 
             
 
(1)(a)   Includes $42.9 million of goodwill and $36.3 million of intangible assets recorded in Arrow’s historical balance sheet as of August 31, 2007.
 
(1)(b)   Reflects an adjustment to record Arrow’s accounts receivable at net fair value.
 
(1)(c)   Preliminary fair value adjustments determined by Teleflex’s management.
 
(1)(d)   Finished goods were valued at estimated selling prices less the sum of costs of disposal and a reasonable profit allowance to sell. Work in process was valued at estimated selling prices of finished goods less the sum of costs to complete, costs of disposal, and a reasonable profit allowance to sell based on profit for similar finished goods. Raw materials were valued at current replacement costs.
 
(1)(e)   Certain assets acquired in the Arrow merger qualify for recognition as intangible assets apart from goodwill in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”. The preliminary estimated fair value of intangible assets acquired included customer related intangibles of $498.7 million, trade names of $249.0 million and purchased technology of $153.4 million. Customer related intangibles have a useful life of 25 years and purchased technology have useful lives ranging from 7-15 years. Tradenames have an indefinite useful life. A portion of the purchase price allocation, represented in-process research and development is deemed to have no future alternative use and will be charged to expense as of the date of the combination.
 
(1)(f)   The increase in noncurrent deferred income taxes primarily represents a $332.2 million deferred tax liability associated with the difference between the assigned values and tax bases of the incremental $615.8 million intangible assets, the $249.0 million indefinite lived intangible assets as well as the preliminary fair value purchase accounting adjustments to accounts receivable, net, inventories and property, plant and equipment, net. No deferred taxes were recorded for in-process research and development.
 
(1)(g)   Purchase accounting adjustment for FIN 48 to conform Arrow’s accounting policy.

F-3


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(In thousands, except for share data)
(Unaudited)
                                         
    Teleflex     Arrow             Pro Forma     Pro Forma  
    9/30/07     8/31/07             Adjustments     Combined  
Revenues
  $ 2,003,124     $ 388,995             $     $ 2,392,119  
Materials, labor and other product costs
    1,387,187       194,632                     1,581,819  
 
                               
Gross profit
    615,937       194,363                     810,300  
Selling, engineering and administrative expenses
    394,604       127,706       A       (3,621 )        
 
                    B       19,766 )     538,455  
Net loss on sales of assets
    1,121       101                     1,222  
Special charges
            8,120       C       (8,120 )      
Restructuring and impairment charges
    6,999       1,329                     8,328  
 
                               
Income from continuing operations before interest, taxes and minority interest
    213,213       57,107               (8,025 )     262,295  
Interest expense
    29,147       1,547       D       (1,547 )        
 
                    E       (549 )        
 
                    F       103,653 )     132,251  
Interest income
    (8,301 )     (5,563 )     G       13,864        
 
                               
Income from continuing operations before taxes and minority interest
    192,367       61,123               (123,446 )     130,044  
Taxes on income from continuing operations
    140,708       22,939       H       (90,162 )        
 
                    I       (44,236 )     29,249  
 
                               
Income from continuing operations before minority interest
    51,659       38,184               10,952       100,795  
Minority interest in consolidated subsidiaries, net of tax
    22,416                           22,416  
 
                               
Income from continuing operations
  $ 29,243     $ 38,184             $ 10,952     $ 78,379  
 
                             
 
                                       
Earnings per share:
                                       
Basic:
                                       
Income from continuing operations
  $ 0.75                             $ 2.00  
 
                                   
 
                                       
Diluted:
                                       
Income from continuing operations
  $ 0.74                             $ 1.98  
 
                                   
 
                                       
 
                                       
Weighted average common shares outstanding:
                                       
Basic
    39,207                               39,207  
Diluted
    39,638                               39,638  
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

F-4


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Pro Forma Statement of Income for the Nine Months ended September 30, 2007
     
 
   
Note A
  The reduction in depreciation expense reflects adjustments determined by Teleflex’s management that reduced the fair values of Property, Plant and Equipment, net, primarily in computer software and computer hardware.
 
   
Note B
  Reflects the increase in amortization of intangibles identified in the preliminary purchase price allocation.
 
   
Note C
  Reflects the reversal of Arrow’s special charges recognized during fiscal 2007 for material nonrecurring charges related to Arrow’s review of strategic alternatives to enhance shareholder value as they are directly attributable to the merger. The special charges related to legal and consulting $3.8 million, severance and related costs to former executives $1.9 million and accelerated vesting of stock options $2.4 million.
 
   
Note D
  Elimination of Arrow interest expense for debt repaid in connection with the acquisition by the Company.
 
   
Note E
  Reflects elimination of interest expense related to the Company’s retired notes. As of January 1, 2007 the outstanding principle on the 7.40% Senior Notes was $3 million and the outstanding principle on the 6.80% Senior Notes was $7.5 million. These notes were repaid in September 2007, in connection with the additional borrowings used to finance the acquisition.
 
   
Note F
  Reflects interest expense and amortization of financing costs as shown in the nine month table under the Financing Arrangements note above.
 
   
Note G
  Reflects reversal of interest income due to the utilization of cash and cash equivalents for the merger.
 
   
Note H
  Reflects the reversal of discrete income tax charges incurred in connection with funding the Arrow acquisition, as noted above.
 
   
Note I
  Reflects the tax effects at the statutory tax rates applicable to the jurisdictions to which the pro forma adjustments have been made.

F-5


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE FISCAL PERIOD ENDED DECEMBER 31, 2006
(Dollars in thousands, except for share data)
(Unaudited)
                                         
    Teleflex     Arrow             Pro Forma     Pro Forma  
    12/31/06     11/30/06             Adjustments     Combined  
Revenues
  $ 2,514,886     $ 490,796             $     $ 3,005,682  
Materials, labor and other product costs
    1,760,024       248,341                     2,008,365  
 
                               
Gross profit
    754,862       242,455                     997,317  
Selling, engineering and administrative expenses
    484,547       159,377       A       (5,080 )        
 
                    B       26,404       665,248  
Net loss (gain) on sales of assets
    838       (281 )                   557  
Restructuring and impairment charges
    25,226       225                     25,451  
 
                               
Income from continuing operations before interest, taxes and minority interest
    244,251       83,134               (21,324 )     306,061  
Interest expense
    41,997       1,264       C       (1,264 )        
 
                    D       (1,077 )        
 
                E       137,142 )     178,062  
Interest income
    (6,412 )     (5,100 )     F       11,512        
 
                               
Income from continuing operations before taxes and minority interest
    208,666       86,970               (167,637 )     127,999  
Taxes on income from continuing operations
    50,295       28,305       G       (60,290 )     18,310  
 
                               
Income from continuing operations before minority interest
    158,371       58,665               (107,347 )     109,689  
Minority interest in consolidated subsidiaries, net of tax
    24,957                           24,957  
 
                               
Income from continuing operations
  $ 133,414     $ 58,665             $ (107,347 )   $ 84,732  
 
                             
 
                                       
Earnings per share:
                                       
Basic:
                                       
Income from continuing operations
  $ 3.36                             $ 2.13  
 
                                   
 
                                       
Diluted:
                                       
Income from continuing operations
  $ 3.34                             $ 2.12  
 
                                   
 
                                       
 
                                       
Weighted average common shares outstanding:
                                       
Basic
    39,760                               39,760  
Diluted
    39,988                               39,988  
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

F-6


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Pro Forma Statement of Income for the Twelve Months ended December 31, 2006
     
Note A
  The reduction in depreciation expense reflects adjustments determined by Teleflex’s management that reduced the fair values of Property, Plant and Equipment, net, primarily in computer software and computer hardware.
 
   
Note B
  Reflects the increase in amortization of intangibles identified in the preliminary purchase price allocation.
 
   
Note C
  Elimination of Arrow interest expense for debt repaid in connection with the acquisition by the Company.
 
   
Note D
  Reflects elimination of interest expense related to the Company’s retired notes. As of December 25, 2005 the outstanding principle on the 7.40% Senior Notes was $6 million, $3 million was repaid in September 2006, and the outstanding principle on the 6.80% Senior Notes was $11 million, $3.5 million was repaid in September 2006. These notes were repaid in connection with the additional borrowings used to finance the acquisition.
 
   
Note E
  Reflects interest expense and amortization of financing costs as shown in the twelve month table in the Financing Arrangements note above.
 
   
Note F
  Reflects reversal of interest income due to the utilization of cash and cash equivalents for the merger.
 
   
Note G
  Reflects the tax effects at the statutory tax rates applicable to the jurisdictions to which the pro forma adjustments have been made.

F-7


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 2007
(Dollars in thousands)
(Unaudited)
                                         
    Teleflex     Arrow             Pro Forma     Pro Forma  
    9/30/07     8/31/07             Adjustments     Combined  
ASSETS
                                       
Current assets
                                       
Cash and cash equivalents
  $ 497,724     $ 159,398       A     $ 1,672,000          
 
                    B       (35,054 )        
 
                    C       (2,105,452 )        
 
                    D       (20,565 )   $ 168,051  
Marketable securities
          16,024                     16,024  
Accounts receivable, net
    396,481       107,741       C       (215 )     504,007  
Inventories
    420,807       112,665       C       35,852       569,324  
Prepaid expenses
    23,210       16,096                     39,306  
Deferred tax assets
    66,842       11,956                     78,798  
Assets held for sale
    2,760                           2,760  
 
                               
Total current assets
    1,407,824       423,880               (453,434 )     1,378,270  
Property, plant and equipment, net
    388,577       183,896       C       (879 )     571,594  
Goodwill
    534,208       42,907       C       941,779       1,518,894  
Intangibles and other assets
    285,514       63,725       C       894,797          
 
                    D       20,565       1,264,601  
Investments in affiliates
    28,072                           28,072  
Deferred tax assets
    4,608                           4,608  
 
                               
Total assets
  $ 2,648,803     $ 714,408             $ 1,402,828     $ 4,766,039  
 
                               
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Current liabilities
                                       
Current borrowings
  $ 80,562     $ 35,749       B     $ (35,054 )        
 
                    A       105,000          
 
                    A       72,000     $ 258,257  
Accounts payable
    214,707       17,655                     232,362  
Accrued expenses
    112,154       36,051                     148,205  
Payroll and benefit-related liabilities
    85,766       23,905                     109,671  
Income taxes payable
    50,203                           50,203  
Deferred tax liabilities
    1,099                           1,099  
 
                               
Total current liabilities
    544,491       113,360               141,946       799,797  
Long-term borrowings
    455,878             A       1,295,000          
 
                    A       200,000       1,950,878  
Deferred tax liabilities
    130,005       6,873       C       332,187       469,065  
Pension and postretirement benefit liabilities
    87,111       22,961                     110,072  
Other liabilities
    96,317             C       4,909       101,226  
 
                               
Total liabilities
    1,313,802       143,194               1,974,042       3,431,038  
Minority interest in equity of consolidated subsidiaries
    44,941                           44,941  
Commitments and contingencies  
                                       
Shareholders’ equity
    1,290,060       571,214       E       (571,214 )     1,290,060  
 
                               
Total liabilities and shareholders’ equity
  $ 2,648,803     $ 714,408             $ 1,402,828     $ 4,766,039  
 
                               
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

F-8


 

TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Pro Forma Balance Sheet as of September 30, 2007  
     
Note A
  Reflects the cash proceeds and additional indebtedness incurred under the Company’s Credit Agreement and issuance of new notes under the Note Purchase Agreement.
         
 
  (in thousands)
Current portion of term loan facility
  $ 105,000  
Revolving credit facility
    72,000  
Noncurrent portion of term loan facility
    1,295,000  
Noncurrent portion of new notes under the Note Purchase Agreement
    200,000  
 
     
 
  $ 1,672,000  
 
     
     
Note B
  Elimination of Arrow debt repaid in connection with the acquisition by the Company.
 
   
Note C
  Reflects the purchase price paid for Arrow and the fair value adjustments determined by Teleflex’s management to record the acquisition. See the Purchase Accounting note above.
 
   
Note D
  Reflects deferred financing costs associated with the Company’s Credit Agreement, Note Purchase Agreements and the amended notes. See the Financing Arrangements note above.
 
   
Note E
  Reflects the elimination of Arrow equity.

F-9