TELEFLEX INC [TFX] Filings

10-Q 1 tfx-20220327.htm 10-Q tfx-20220327

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 March 27, 2022


☐			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 46,900,058 shares of common stock, par value $1.00 per share, outstanding as of April 26, 2022.

TELEFLEX INCORPORATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 27, 2022

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1:

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Changes in Equity

Notes to Condensed Consolidated Financial Statements

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

Item 4:

Controls and Procedures

PART II — OTHER INFORMATION

Item 1:

Legal Proceedings

Item 1A:

Risk Factors

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3:

Defaults Upon Senior Securities

Item 4:

Mine Safety Disclosures

Item 5:

Other Information

Item 6:

Exhibits

SIGNATURES

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended
	March 27, 2022		March 28, 2021
	(Dollars and shares in thousands, except per share)
Net revenues	$	641,715	$	633,925
Cost of goods sold	295,482		289,398
Gross profit	346,233		344,527
Selling, general and administrative expenses	203,932		203,148
Research and development expenses	36,360		29,947
Restructuring and impairment charges	2,405		7,998

Income from continuing operations before interest and taxes	103,536		103,434
Interest expense	10,418		16,798
Interest income	(222)		(659)

Income from continuing operations before taxes	93,340		87,295
Taxes on income from continuing operations	15,973		12,428
Income from continuing operations	77,367		74,867
Operating loss from discontinued operations	(294)		(1)
Tax benefit on operating loss from discontinued operations	(68)		—
Loss from discontinued operations	(226)		(1)
Net income	$	77,141	$	74,866
Earnings per share:
Basic:
Income from continuing operations	$	1.65	$	1.60
Loss from discontinued operations	—		—
Net income	$	1.65	$	1.60
Diluted:
Income from continuing operations	$	1.63	$	1.58
Loss from discontinued operations	—		—
Net income	$	1.63	$	1.58
Weighted average common shares outstanding
Basic	46,876		46,698
Diluted	47,402		47,407

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

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended
	March 27, 2022		March 28, 2021
	(Dollars in thousands)
Net income	$	77,141	$	74,866
Other comprehensive (loss) income, net of tax:
Foreign currency translation, net of tax of $(1,136), and $(598) for the three months periods, respectively	(23,329)		(24,075)
Pension and other postretirement benefit plans adjustment, net of tax of $(499), and $(513) for the three months periods, respectively	1,586		1,611
Derivatives qualifying as hedges, net of tax of $(30), and $33 for the three months periods, respectively	457		27
Other comprehensive loss, net of tax:	(21,286)		(22,437)
Comprehensive income	$	55,855	$	52,429

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

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 27, 2022		December 31, 2021
	(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents	$	466,656	$	445,084
Accounts receivable, net	407,159		383,569
Inventories	491,422		477,643
Prepaid expenses and other current assets	123,872		117,277
Prepaid taxes	5,092		5,545

Total current assets	1,494,201		1,429,118
Property, plant and equipment, net	436,021		443,758
Operating lease assets	124,390		129,653
Goodwill	2,492,726		2,504,202
Intangible assets, net	2,243,559		2,289,067
Deferred tax assets	6,791		6,820
Other assets	75,622		69,104

Total assets	$	6,873,310	$	6,871,722
LIABILITIES AND EQUITY
Current liabilities
Current borrowings	$	110,000	$	110,000
Accounts payable	117,464		118,236
Accrued expenses	158,945		163,441

Payroll and benefit-related liabilities	102,407		143,657
Accrued interest	16,808		5,209
Income taxes payable	88,451		83,943
Other current liabilities	62,125		55,633

Total current liabilities	656,200		680,119
Long-term borrowings	1,740,778		1,740,102
Deferred tax liabilities	369,739		370,124
Pension and postretirement benefit liabilities	43,427		45,185
Noncurrent liability for uncertain tax positions	8,614		8,646

Noncurrent operating lease liabilities	109,597		116,033
Other liabilities	149,421		156,765
Total liabilities	3,077,776		3,116,974
Commitments and contingencies
Total shareholders' equity	3,795,534		3,754,748
Total liabilities and shareholders' equity	$	6,873,310	$	6,871,722

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

TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	March 27, 2022		March 28, 2021
	(Dollars in thousands)
Cash flows from operating activities of continuing operations:
Net income	$	77,141	$	74,866
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations	226		1
Depreciation expense	17,317		17,513
Intangible asset amortization expense	40,597		41,922
Deferred financing costs and debt discount amortization expense	1,048		1,210


Fair value step up of acquired inventory sold	—		3,993
Changes in contingent consideration	(30)		6,354
Asset impairment charges	1,497		—
Stock-based compensation	5,302		5,344

Deferred income taxes, net	409		425

Interest benefit on swaps designated as net investment hedges	(4,848)		(4,647)
Other	(2,093)		(14,384)
Changes in assets and liabilities, net of effects of acquisitions and disposals:
Accounts receivable	(27,805)		(12,298)
Inventories	(19,852)		(10,074)
Prepaid expenses and other assets	4,830		3,342
Accounts payable, accrued expenses and other liabilities	(36,978)		(4,438)
Income taxes receivable and payable, net	5,341		1,665
Net cash provided by operating activities from continuing operations	62,102		110,794
Cash flows from investing activities of continuing operations:
Expenditures for property, plant and equipment	(13,078)		(19,276)
Proceeds from sale of business and assets	262		161
Payments for businesses and intangibles acquired, net of cash acquired	—		(1,762)




Net cash used in investing activities from continuing operations	(12,816)		(20,877)
Cash flows from financing activities of continuing operations:

Reduction in borrowings	—		(100,000)
Debt extinguishment, issuance and amendment fees	—		(22)
Net payments from share based compensation plans and the related tax impacts	(4,941)		(2,510)
Payments for contingent consideration	(73)		(13,071)
Dividends paid	(15,946)		(15,893)

Net cash used in financing activities from continuing operations	(20,960)		(131,496)
Cash flows from discontinued operations:
Net cash used in operating activities	(119)		(243)
Net cash used in discontinued operations	(119)		(243)
Effect of exchange rate changes on cash and cash equivalents	(6,635)		(9,427)
Net increase (decrease) in cash and cash equivalents	21,572		(51,249)
Cash and cash equivalents at the beginning of the period	445,084		375,880
Cash and cash equivalents at the end of the period	$	466,656	$	324,631

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

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, 2021	47,929	$	47,929	$	693,090	$	3,517,954	$	(346,959)	1,069	$	(157,266)	$	3,754,748

Net income						77,141							77,141
Cash dividends ($0.34 per share)						(15,946)							(15,946)
Other comprehensive loss								(21,286)					(21,286)
Shares issued under compensation plans	5	5		(950)						(27)	894		(51)
Deferred compensation	—	—		100						(5)	828		928
Balance at March 27, 2022	47,934	$	47,934	$	692,240	$	3,579,149	$	(368,245)	1,037	$	(155,544)	$	3,795,534


	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, 2020	47,812	$	47,812	$	652,305	$	3,096,228	$	(297,298)	1,132	$	(162,590)	$	3,336,457

Net income						74,866							74,866
Cash dividends ($0.34 per share)						(15,893)							(15,893)
Other comprehensive loss								(22,437)					(22,437)
Shares issued under compensation plans	18	18		1,993						(28)	99		2,110
Deferred compensation	—	—		447						(4)	241		688
Balance at March 28, 2021	47,830	$	47,830	$	654,745	$	3,155,201	$	(319,735)	1,100	$	(162,250)	$	3,375,791

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

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(all tabular amounts in thousands unless otherwise noted)

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. 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, 2021.

Note 2 — Recently issued accounting standards

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 believe 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, which constituted 89%, 9% and 2% of consolidated net revenues, respectively, for the three months ended March 27, 2022. 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.

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table disaggregates revenue by global product category for the three months ended March 27, 2022 and March 28, 2021.


	Three Months Ended
		March 27, 2022		March 28, 2021
Vascular access		$	166,134	$	163,973
Anesthesia		86,957		84,857
Interventional		96,859		96,173
Surgical		89,702		80,386
Interventional urology		74,895		73,364
OEM		57,656		53,489
Other (1)		69,512		81,683
Net revenues (2)		$	641,715	$	633,925

(1)Includes revenues generated from sales of our respiratory and urology products (other than interventional urology products). Certain product lines within the respiratory product category were sold during 2021. See Note 4 for additional information related to the Respiratory business divestiture

(2)The product categories listed above are presented on a global basis, while each of our reportable segments other than the OEM reportable segment are defined based on the geographic location of its operations; the OEM reportable segment operates globally. Each of the geographically based reportable segments include net revenues from each of the non-OEM product categories listed above.

Note 4 — Divestiture

On May 15, 2021, we entered into a definitive agreement to sell certain product lines within our global respiratory product portfolio (the "Divested respiratory business") to Medline Industries, Inc. (“Medline”) for consideration of $286.0 million, reduced by $12 million in working capital not transferring to Medline, which is subject to customary post close adjustments (the "Respiratory business divestiture"). In connection with the Respiratory business divestiture, we also entered into several ancillary agreements with Medline to help facilitate the transfer of the business, which provide for transition support, quality, supply and manufacturing services, including a manufacturing and supply transition agreement (the "MSTA").

On June 28, 2021, the first day of the third quarter of 2021, we completed the initial phase of the Respiratory business divestiture, pursuant to which we received cash proceeds of $259 million. The second phase of the Respiratory business divestiture will occur once we transfer certain additional manufacturing assets to Medline and is expected to occur prior to the end of 2023. We plan to recognize the remaining consideration, and any gain on sale resulting from the completion of the second phase of the divestiture, when it becomes realizable.

Net revenues attributable to our divested respiratory business recognized prior to the Respiratory business divestiture are included within each of our geographic segments and were $31.1 million for the three months ended March 28, 2021. For the three months ended March 27, 2022, we recognized $21.1 million in net revenues attributed to services provided to Medline in accordance with the MSTA, which are presented within our Americas reporting segment.

Note 5 — Restructuring and impairment charges

We have ongoing restructuring initiatives consisting of a plan, initiated in connection with the Respiratory business divestiture described in Note 4, designed to separate the manufacturing operations to be transferred to Medline from those that will remain with Teleflex (the “Respiratory divestiture plan”), and plans related to the relocation of manufacturing operations to existing lower-cost locations and related workforce reductions (referred to as the 2019 and 2018 Footprint realignment plans). The following tables provide a summary of our cost estimates and other information associated with these plans:

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Respiratory divestiture plan

2019 Footprint realignment plan

2018 Footprint realignment plan

Plan expense estimates:

(Dollars in millions)

Termination benefits

$5 to $8

$14 to $15

$60 to $65

Other costs (1)

— to —

2 to 2

3 to 4

Restructuring charges

5 to 8

16 to 17

63 to 69

Restructuring related charges (2)

19 to 22

38 to 43

47 to 59

Total restructuring and restructuring related charges

$24 to $30

$54 to $60

$110 to $128

Other plan estimates:

Expected cash outlays

$24 to $30

$48 to $54

$99 to $122

Expected capital expenditures

$22 to $28

$31 to $33

$15 to $16

Other plan information:

Period initiated

May 2021

February 2019

May 2018

Estimated period of substantial completion

2023

2022

Aggregate restructuring charges

$2.8

$14.9

$62.7

Restructuring reserve:

Balance as of March 27, 2022

$2.7

$2.2

$42.9

Restructuring related charges incurred:

Three Months Ended March 27, 2022

$2.0

$1.1

$2.3

Aggregate restructuring related charges

$5.3

$35.3

$29.7

(1)Includes facility closure, employee relocation, equipment relocation and outplacement costs.

(2)Restructuring related charges represent costs that are directly related to the plans and principally constitute costs to transfer manufacturing operations to the existing lower-cost locations, project management costs and accelerated depreciation. The 2018 Footprint realignment plan also includes a charge associated with our exit from the facilities that is expected to be imposed by the taxing authority in the affected jurisdiction. Excluding this tax charge, substantially all of the restructuring related charges are expected to be recognized within cost of goods sold.

In 2014, we initiated a restructuring plan involving the consolidation of operations and a related reduction in workforce at certain facilities, in addition to the relocation of manufacturing operations from certain higher-cost locations to existing lower-cost locations (the "2014 Footprint realignment plan”). The plan is substantially complete and as a result, we expect future restructuring expenses associated with the plan, if any, to be immaterial.

Restructuring and impairment charges recognized for the three months ended March 27, 2022 and March 28, 2021 consisted of the following:


Three Months Ended March 27, 2022
	Termination benefits		Other costs (1)		Total
Respiratory divestiture plan	$	106	$	14	$	120

2019 Footprint realignment plan	(670)		24		(646)
2018 Footprint realignment plan	158		62		220
Other restructuring plans (2)	1,132		82		1,214
Restructuring charges	726		182		908
Asset impairment charges	—		1,497		1,497
Restructuring and impairment charges	$	726	$	1,679	$	2,405

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


Three Months Ended March 28, 2021
	Termination benefits		Other costs (1)		Total
2021 Restructuring plan	$	6,760	$	—	$	6,760
2019 Footprint realignment plan	341		105		446
2018 Footprint realignment plan	267		45		312
Other restructuring plans (3)	(166)		646		480
Restructuring charges	$	7,202	$	796	$	7,998

(1) Other costs include facility closure, contract termination and other exit costs.

(2) Includes activity primarily related to a restructuring plan initiated in the first quarter of 2022 that is designed to relocate manufacturing operations at certain of our facilities, the 2021 Restructuring plan and the 2014 Footprint realignment plan.

(3) Includes the plan initiated during the third quarter of 2019 as well as the 2016 and 2014 Footprint realignment plans.

Note 6 — Inventories

Inventories as of March 27, 2022 and December 31, 2021 consisted of the following:


	March 27, 2022		December 31, 2021
Raw materials	$	149,603	$	146,433
Work-in-process	89,017		81,503
Finished goods	252,802		249,707
Inventories	$	491,422	$	477,643

Note 7 — Goodwill and other intangible assets

The following table provides information relating to changes in the carrying amount of goodwill by reportable operating segment for the three months ended March 27, 2022:


	Americas		EMEA		Asia		OEM		Total
December 31, 2021	$	1,676,224	$	492,149	$	223,819	$	112,010	$	2,504,202




Currency translation adjustment	513		(10,458)		(1,531)		—		(11,476)
March 27, 2022	$	1,676,737	$	481,691	$	222,288	$	112,010	$	2,492,726

The gross carrying amount of, and accumulated amortization relating to, intangible assets as of March 27, 2022 and December 31, 2021 were as follows:


	Gross Carrying Amount				Accumulated Amortization
	March 27, 2022		December 31, 2021		March 27, 2022		December 31, 2021
Customer relationships	$	1,325,969	$	1,328,611	$	(455,183)	$	(441,059)
In-process research and development	27,670		28,158		—		—
Intellectual property	1,438,935		1,440,643		(581,414)		(560,740)
Distribution rights	23,290		23,434		(20,682)		(20,630)
Trade names	546,522		549,269		(62,073)		(59,249)
Non-compete agreements	22,188		22,783		(21,663)		(22,153)
	$	3,384,574	$	3,392,898	$	(1,141,015)	$	(1,103,831)

Note 8 — Financial instruments

Foreign currency forward contracts

We use derivative instruments for risk management purposes. Foreign currency forward contracts designated as cash flow hedges are used to manage foreign currency transaction exposure. Foreign currency forward contracts

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

not designated as hedges for accounting purposes are used to manage exposure related to near term foreign currency denominated monetary assets and liabilities. We enter into the non-designated foreign currency forward contracts for periods consistent with our currency translation exposures, which generally approximate one month. For the three months ended March 27, 2022 and March 28, 2021, we recognized losses of $3.3 million and $3.2 million, respectively, related to non-designated foreign currency forward contracts.

The total notional amount for all open foreign currency forward contracts designated as cash flow hedges as of March 27, 2022 and December 31, 2021 was $158.7 million and $149.5 million, respectively. The total notional amount for all open non-designated foreign currency forward contracts as of March 27, 2022 and December 31, 2021 was $134.6 million and $161.2 million, respectively. All open foreign currency forward contracts as of March 27, 2022 have durations of 12 months or less.

Cross-currency interest rate swaps

During 2019, we entered into cross-currency swap agreements with five different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate. Under the terms of the cross-currency swap agreements, we have notionally exchanged $250 million at an annual interest rate of 4.875% for €219.2 million at an annual interest rate of 2.4595%. The swap agreements are designed as net investment hedges and expire on March 4, 2024.

During 2018, we entered into cross-currency swap agreements with six different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate. Under the terms of the cross-currency swap agreements, we have notionally exchanged $500 million at an annual interest rate of 4.625% for €433.9 million at an annual interest rate of 1.942%. The swap agreements are designed as net investment hedges and expire on October 4, 2023.

The swap agreements described above require an exchange of the notional amounts upon expiration or earlier termination of the agreements. We and the counterparties have agreed to effect the exchange through a net settlement.

The cross-currency swaps are marked to market at each reporting date and any changes in fair value are recognized as a component of accumulated other comprehensive income (loss) ("AOCI"). The following table summarizes the foreign exchange gains and losses recognized within AOCI and the interest benefit recognized within interest expense related to cross currency swap for the three months ended March 27, 2022 and March 28, 2021:


	Three Months Ended
		March 27, 2022		March 28, 2021
Foreign exchange gains		$	3,840	$	17,614
Interest benefit		4,848		4,647

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Balance sheet presentation

The following table presents the locations in the condensed consolidated balance sheet and fair value of derivative financial instruments as of March 27, 2022 and December 31, 2021:


	March 27, 2022		December 31, 2021
	Fair Value
Asset derivatives:
Designated foreign currency forward contracts	$	3,500	$	1,957
Non-designated foreign currency forward contracts	86		56
Cross-currency interest rate swaps	26,653		21,718
Prepaid expenses and other current assets	30,239		23,731
Cross-currency interest rate swaps	14,448		9,560
Other assets	14,448		9,560
Total asset derivatives	$	44,687	$	33,291
Liability derivatives:
Designated foreign currency forward contracts	$	2,708	$	993
Non-designated foreign currency forward contracts	110		147
Other current liabilities	2,818		1,140


Total liability derivatives	$	2,818	$	1,140

See Note 10 for information on the location and amount of gains and losses attributable to derivatives that were reclassified from AOCI to expense (income), net of tax.

There was no ineffectiveness related to our cash flow hedges during the three months ended March 27, 2022 and March 28, 2021.

Trade receivables

The allowance for credit losses as of March 27, 2022 and December 31, 2021 was $10.2 million and $10.8 million, respectively. The current portion of the allowance for credit losses, which was $5.6 million and $6.0 million as of March 27, 2022 and December 31, 2021, respectively, was recognized as a reduction of accounts receivable, net.

Note 9 — Fair value measurement

The following tables provide information regarding our financial assets and liabilities measured at fair value on a recurring basis as of March 27, 2022 and December 31, 2021:


	Total carrying value at March 27, 2022		Quoted prices in active markets (Level 1)		Significant other observable Inputs (Level 2)		Significant unobservable Inputs (Level 3)
Investments in marketable securities	$	18,437	$	18,437	$	—	$	—
Derivative assets	44,687		—		44,687		—
Derivative liabilities	2,818		—		2,818		—
Contingent consideration liabilities	9,709		—		—		9,709

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Total carrying value at December 31, 2021		Quoted prices in active markets (Level 1)		Significant other observable Inputs (Level 2)		Significant unobservable Inputs (Level 3)
Investments in marketable securities	$	19,186	$	19,186	$	—	$	—
Derivative assets	33,291		—		33,291		—
Derivative liabilities	1,140		—		1,140		—
Contingent consideration liabilities	9,814		—		—		9,814

Valuation Techniques

Our financial assets valued based upon Level 1 inputs are comprised of investments in marketable securities held in trust, which are available to satisfy benefit obligations under our benefit plans and other arrangements. The investment assets of the trust are valued using quoted market prices.

Our financial assets and liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts and cross-currency interest rate swap agreements. We use foreign currency forwards and cross-currency interest rate swaps to manage foreign currency transaction exposure, as well as exposure to foreign currency denominated monetary assets and liabilities. We measure the fair value of the foreign currency forwards and cross-currency swaps by calculating the amount required to enter into offsetting contracts with similar remaining maturities, based on quoted market prices, and taking into account the creditworthiness of the counterparties.

Our financial liabilities valued based upon Level 3 inputs (inputs that are not observable in the market) are comprised of contingent consideration arrangements pertaining to our acquisitions.

Note 10 — Shareholders' equity

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner except that the weighted average number of shares is increased to include dilutive securities. The following table provides a reconciliation of basic to diluted weighted average number of common shares outstanding:


	Three Months Ended
		March 27, 2022	March 28, 2021
Basic		46,876	46,698
Dilutive effect of share-based awards		526	709

Diluted		47,402	47,407

The weighted average number of shares that were antidilutive and therefore excluded from the calculation of earnings per share were 0.3 million and 0.1 million for the three months ended March 27, 2022 and March 28, 2021, respectively.

The following tables provide information relating to the changes in accumulated other comprehensive loss, net of tax, for the three months ended March 27, 2022 and March 28, 2021:


	Cash Flow Hedges		Pension and Other Postretirement Benefit Plans		Foreign Currency Translation Adjustment		Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2021	$	1,081	$	(138,290)	$	(209,750)	$	(346,959)
Other comprehensive income (loss) before reclassifications	57		246		(23,329)		(23,026)
Amounts reclassified from accumulated other comprehensive income	400		1,340		—		1,740
Net current-period other comprehensive income (loss)	457		1,586		(23,329)		(21,286)

Balance as of March 27, 2022	$	1,538	$	(136,704)	$	(233,079)	$	(368,245)

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Cash Flow Hedges		Pension and Other Postretirement Benefit Plans		Foreign Currency Translation Adjustment		Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2020	$	(482)	$	(150,257)	$	(146,559)	$	(297,298)
Other comprehensive (loss) income before reclassifications	(811)		161		(24,075)		(24,725)
Amounts reclassified from accumulated other comprehensive income (loss)	838		1,450		—		2,288
Net current-period other comprehensive income (loss)	27		1,611		(24,075)		(22,437)

Balance as of March 28, 2021	$	(455)	$	(148,646)	$	(170,634)	$	(319,735)

The following table provides information relating to the location in the statements of operations and amount of reclassifications of losses/(gains) in accumulated other comprehensive (loss) income into expense/(income), net of tax, for the three months ended March 27, 2022 and March 28, 2021:


	Three Months Ended
		March 27, 2022		March 28, 2021
Losses (gains) on foreign exchange contracts:
Cost of goods sold		$	398	$	846
Total before tax		398		846
Taxes (benefit)		2		(8)
Net of tax		400		838
Amortization of pension and other postretirement benefit items (1):
Actuarial losses		2,000		2,143
Prior-service costs		(252)		(251)

Total before tax		1,748		1,892
Tax benefit		(408)		(442)
Net of tax		1,340		1,450
Total reclassifications, net of tax		$	1,740	$	2,288

(1) These accumulated other comprehensive (loss) income components are included in the computation of net benefit expense for pension and other postretirement benefit plans.

Note 11 — Taxes on income from continuing operations

Three Months Ended

March 27, 2022

March 28, 2021

Effective income tax rate

17.1%

14.2%

The effective income tax rates for the three months ended March 27, 2022 and March 28, 2021 were 17.1% and 14.2%, respectively. The effective income tax rate for the three months ended March 27, 2022 includes higher tax expense resulting from a U.S. law effective in 2022 requiring capitalization of certain research and development expenditures. The effective income tax rate for the three months ended March 28, 2021 reflects tax benefits associated with the Z-Medica acquisition and the 2021 Restructuring Plan. The effective income tax rates for both periods reflect a net tax benefit related to share-based compensation and a tax benefit from research and development tax credits.

Note 12 — Commitments and contingent liabilities

Environmental: We are subject to contingencies as a result of environmental laws and regulations that in the future may require us to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by us or other parties. Much of this liability results from the U.S. Comprehensive Environmental Response, Compensation and Liability Act, often referred to as Superfund, the U.S.

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Resource Conservation and Recovery Act and similar state laws. These laws require us to undertake certain investigative and remedial activities at sites where we conduct or once conducted operations or at sites where Company-generated waste was disposed.

Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, the regulatory agencies involved and their enforcement policies, as well as the presence or absence of other potentially responsible parties. At March 27, 2022, we have recorded $2.0 million and $4.2 million in accrued liabilities and other liabilities, respectively, relating to these matters. Considerable uncertainty exists with respect to these liabilities and, if adverse changes in circumstances occur, the potential liability may exceed the amount accrued as of March 27, 2022. The time frame over which the accrued amounts may be paid out, based on past history, is estimated to be 10-15 years.

Legal matters: We are a party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability, product warranty, commercial disputes, intellectual property, contract, employment, environmental and other matters. As of March 27, 2022, we have recorded accrued liabilities of $0.2 million in connection with such contingencies, representing our best estimate of the cost within the range of estimated possible losses that will be incurred to resolve these matters.

In June 2020, we began producing documents and information in response to a Civil Investigative Demand (a “CID”) received in March 2020 by one of our subsidiaries, NeoTract, Inc. (“NeoTract”), from the U.S. Department of Justice through the United States Attorney’s Office for the Northern District of Georgia (collectively, the “DOJ”). The CID relates to the DOJ’s investigation of a single NeoTract customer, requires the production of documents and information pertaining to communications with, and certain rebate programs offered to, that customer and pertains to communications and activities occurring both prior to our acquisition of NeoTract in October 2017 and thereafter. In July 2020, the DOJ advised us that it had opened an investigation under the civil False Claims Act, 31 U.S.C. §3729, with respect to NeoTract’s operations broadly in addition to the customer investigation.

Based on information currently available, advice of counsel, established reserves and other resources, we do not believe that the outcome of any outstanding litigation and claims is likely to be, individually or in the aggregate, material to our business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to our business, financial condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to selling, general and administrative expenses in the period incurred.

We maintain policies and procedures to promote compliance with the Anti-Kickback Statute, False Claims Acts and other applicable laws and regulations and intend to provide information sought by the government. We cannot at this time reasonably predict, however, the ultimate scope or outcome of this matter, including whether an investigation may raise other compliance issues of interest, including those beyond the scope described above or how any such issues might be resolved. We also cannot at this time reasonably estimate any potential liabilities or penalty, if any, that may arise from this matter, which could have a material adverse effect on our results of operations and financial condition.

Other: We have been subject to an investigation by Chinese authorities related to a technical error regarding our country of origin designation for certain products we imported into China. Had the error not been made, we would have been obligated to make increased tariff payments in late 2018 through the first quarter of 2021. In addition to the tariffs and related interest, the Chinese authorities may impose a penalty for the unpaid tariffs.

To date, we have remitted payment for the requested amounts of the increased tariffs and we believe this to be the final action required to close the case. However, we have not received confirmation from the Chinese authorities that the case is closed and as a result, it remains possible that they may request payment for penalties and interest in the future. We believe the range of penalties could be between 30% and 200% of the increased tariff amount or between $3 million and $20 million.

Tax audits and examinations: We are routinely subject to tax examinations by various tax authorities. As of March 27, 2022, the most significant tax examinations in process were in Ireland and Germany. We may establish

TELEFLEX INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

reserves with respect to our uncertain tax positions, after we adjust the reserves to address developments with respect to our uncertain tax positions, including developments in these tax examinations. Accordingly, developments in tax audits and examinations, including resolution of uncertain tax positions, could result in increases or decreases to our recorded tax liabilities, which could impact our financial results.

Note 13 — Segment information

The following tables present our segment results for the three months ended March 27, 2022 and March 28, 2021:


	Three Months Ended
		March 27, 2022		March 28, 2021
Americas		$	377,961	$	375,493
EMEA		136,908		141,253
Asia		69,190		63,690
OEM		57,656		53,489
Net revenues		$	641,715	$	633,925


	Three Months Ended
		March 27, 2022		March 28, 2021
Americas		$	96,901	$	83,602
EMEA		9,094		22,995
Asia		17,417		14,916
OEM		10,923		12,562
Total segment operating profit (1)		134,335