TELEFLEX INCORPORATED Overview
Teleflex Incorporated ("we," "us," "our" and "Teleflex") is a global provider of medical technology products focused on enhancing clinical benefits, improving patient and provider safety and reducing total procedural costs. We primarily design, develop, manufacture and supply single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications. We market and sell our products worldwide through a combination of our direct sales force and distributors. Because our products are used in numerous markets and for a variety of procedures, we are not dependent upon any one end-market or procedure. We are focused on achieving consistent, sustainable and profitable growth by increasing our market share and improving our operating efficiencies. We evaluate our portfolio of products and businesses on an ongoing basis to ensure alignment with our overall objectives. Based on our evaluation, we may identify opportunities to divest businesses and product lines that do not meet our objectives. In addition, we may seek to optimize utilization of our facilities through restructuring initiatives designed to further improve our cost structure and enhance our competitive position. We also may continue to explore opportunities to expand the size of our business and improve operating margins through a combination of acquisitions and distributor to direct sales conversions, which generally involve our elimination of a distributor from the sales channel, either by acquiring the distributor or terminating the distributor relationship (in some instances, particularly inAsia , the conversions involve our acquisition or termination of a master distributor and the continued sale of our products through sub-distributors or through new distributors). Distributor to direct sales conversions are designed to facilitate improved product pricing and more direct access to the end users of our products within the sales channel. Divestiture OnMay 15, 2021 , we entered into a definitive agreement to sell certain product lines within our global respiratory product portfolio (the "Divested respiratory business") toMedline 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"). OnJune 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 . We attributed$33.8 million of the proceeds to our performance obligations pursuant to the MSTA. The resulting liability was measured as the excess of the estimated fair value of the services to be performed over the estimated proceeds we expect to receive over the MSTA term. It was recorded within Other current liabilities and Other liabilities in the condensed consolidated balance sheet and the related proceeds will be recognized in net revenues as the services are performed. The second phase of the Respiratory business divestiture will occur once we transfer certain additional manufacturing assets to Medline. Our receipt of$15.0 million in additional cash proceeds is contingent upon the transfer of these manufacturing assets and is expected to occur prior to the end of 2023. We plan to recognize the contingent consideration, and any gain on sale resulting from 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$60.7 million during the nine months endedSeptember 26, 2021 , and$29.8 million and$102.5 million for the three and nine months endedSeptember 27, 2020 , respectively. For the three and nine months endedSeptember 27, 2021 , we recognized$27.9 million in net revenues attributed to services provided to Medline in accordance with the MSTA, which are presented within ourAmericas reporting segment. COVID-19 pandemic Beginning in the first half of 2020, the challenges arising from the COVID-19 pandemic have adversely impacted our financial results, mainly as a result of a decline in demand for certain of our products, and have had an effect on various aspects of our global operations as well as our employees, contractors, suppliers, customers, freight transport providers and other business partners. Our business has been impacted by travel restrictions, 20 -------------------------------------------------------------------------------- border closures and quarantines as they affect our various sites, including our 35 global manufacturing sites. We have also experienced inefficiencies in our manufacturing operations due to temporary or partial work stoppages as well as government-mandated and self-imposed restrictions placed on, and safety measures implemented at, our facilities globally. We continue to monitor the impacts to our operations. While we have not yet experienced significant disruptions in the global supply chain for our products that are in high demand, we have in some cases experienced lengthened delivery times, resulting in backorders for some of our products. To date, our financial results were most severely impacted by the pandemic during the second quarter of 2020 due to reduced elective procedure volumes, partially offset by increased demand for products used in the treatment of patients with COVID-19. Since the second quarter of 2020, we have experienced varying levels of continuing recovery across our product lines and geographic segments from the challenges stemming from the pandemic. We believe that the COVID-19 pandemic will continue to have an impact on our business, particularly in the near term, and that such impact would be most significant if the virus becomes more prevalent, if vaccine immunization rates do not increase and if new strains of the virus continue to emerge. As a result of the dynamic nature of the crisis, we cannot accurately predict the extent or duration of the impacts of the pandemic. Results of Operations As used in this discussion, "new products" are products for which commercial sales have commenced within the past 36 months, and "existing products" are products for which commercial sales commenced more than 36 months ago. Discussion of results of operations items that reference the effect of one or more acquired and/or divested businesses or assets (except as noted below with respect to acquired distributors) generally reflects the impact of the acquisitions and/or divestitures within the first 12 months following the date of the acquisition and/or divestiture. In addition to increases and decreases in the per unit selling prices of our products to our customers, our discussion of the impact of product price increases and decreases also reflects the impact on the pricing of our products resulting from the elimination of the distributor, either through acquisition or termination of the distributor, from the sales channel. All of the dollar amounts in the tables are presented in millions unless otherwise noted. Certain financial information is presented on a rounded basis, which may cause minor differences. Net revenues Three Months Ended Nine Months Ended September 27, September 26, September 27, September 26, 2021 2020 2021 2020 Net revenues$ 700.3 $ 628.3 $ 2,047.6 $ 1,826.0 Net revenues for the three months endedSeptember 26, 2021 increased$72.0 million , or 11.5%, compared to the prior year period, which was primarily attributable to a$27.4 million increase in sales volumes of existing products largely stemming from the impact that the COVID-19 pandemic had on the prior year, net revenues of$17.5 million generated by the Z-Medica acquisition, a$14.9 million increase in new product sales, and to a lesser extent, favorable fluctuations in foreign currency exchange rates. Net revenues for the nine months endedSeptember 26, 2021 increased$221.6 million , or 12.1%, compared to the prior year period, which was primarily attributable to a$70.2 million increase in sales volume of existing products largely stemming from the impact that the COVID-19 pandemic had on the prior year, net revenues of$53.5 million generated by acquired businesses, primarily Z-Medica,$49.9 million of favorable fluctuations in foreign currency exchange rates, and, to a lesser extent, an increase in new product sales. Gross profit Three Months Ended Nine Months Ended September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020 Gross profit $ 387.8 $ 329.3 $ 1,129.9 $ 941.3 Percentage of sales 55.4 % 52.4 % 55.2 % 51.6 % Gross margin for the three months endedSeptember 26, 2021 increased 300 basis points, or 5.7%, compared to the prior year period, primarily due to benefits from cost improvement initiatives, favorable product mix, higher sales volumes partially stemming from the impact that the COVID-19 pandemic had on the prior year, price increases and favorable fluctuations in foreign exchange rates. The increases in gross margin was partially offset by increases in logistics and distribution costs. 21 -------------------------------------------------------------------------------- Gross margin for the nine months endedSeptember 26, 2021 increased 360 basis points, or 7.0%, compared to the prior year period, primarily due to higher sales volumes largely stemming from the impact that the COVID-19 pandemic had on the prior year, benefits from cost improvement initiatives and favorable product mix. Selling, general and administrative Three Months Ended Nine Months Ended September 26, 2021
205.2 $ 171.7 $ 632.5 $ 510.7
Percentage of sales 29.3 % 27.3 % 30.9 % 28.0 %
Selling, general and administrative expenses for the three months ended
September 26, 2021 increased $33.5 million compared to the prior year period.
The increase was primarily attributable to the benefit recognized in the prior
year resulting from decreases in the estimated fair value of our contingent
consideration liabilities stemming from the adverse impacts of the COVID-19
pandemic, higher selling and marketing expenses within certain of our product
portfolios and operating expenses incurred to support the Z-Medica business. The
increase in selling, general and administrative expenses was partially offset by
a benefit from the reversal of a contingent liability related to tariffs imposed
by Chinese authorities, which is described further in Note 13 to the condensed
consolidated financial statements.
Selling, general and administrative expenses for the nine months ended
September 26, 2021 increased $121.8 million compared to the prior year period.
The increase was primarily attributable to the benefit recognized in the prior
year resulting from decreases in the estimated fair value of our contingent
consideration liabilities stemming from the adverse impacts of the COVID-19
pandemic, operating expenses incurred by acquired businesses, primarily
Z-Medica, higher performance related employee-benefit expenses and, to a lesser
extent, unfavorable fluctuations in foreign currency exchange rates.
Research and development
Three Months Ended Nine Months Ended
September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020
Research and development $ 31.8 $ 29.2 $ 95.0 $ 86.0
Percentage of sales 4.5 % 4.7 % 4.6 % 4.7 %
The increase in research and development expenses for the three and nine months
ended September 26, 2021 compared to the prior year period was primarily
attributable to European Union Medical Device Regulation ("EU MDR") related
costs partially offset by lower project spend within certain of our product
portfolios.
Restructuring and impairment charges
Respiratory divestiture plan
During the second quarter of 2021, in connection with the Respiratory business
divestiture, we committed to a restructuring plan designed to separate the
manufacturing operations that will be transferred to Medline from those that
will remain with Teleflex , which includes related workforce reductions (the
"Respiratory divestiture plan"). The plan includes expanding certain of our
existing locations to accommodate the transfer of capacity from the sites that
will be transferred to Medline and replicating the manufacturing processes at
alternate existing locations. We expect this plan will be substantially
completed by the end of 2023.
We estimate that we will incur aggregate pre-tax restructuring and restructuring
related charges in connection with the Respiratory divestiture plan of $24
million to $30 million , of which we expect $6 million to $7 million to be
incurred in 2021 and the balance to be incurred in 2022 and 2023. We estimate
that substantially all of these charges will result in cash outlays, the
majority of which will be made in 2022 and 2023. Additionally, we expect to
incur $22 million to $28 million in aggregate capital expenditures under the
plan, which are expected to be incurred mostly in 2022 and 2023.
2021 Restructuring plan
During the first quarter of 2021, we committed to a restructuring plan designed
to streamline various business functions across our segments. We estimate that
we will incur aggregate pre-tax restructuring charges of $7 million to $9
million , consisting primarily of termination benefits. In addition, we expect to
incur $3 million to $4 million in
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restructuring related charges, most of which are expected to be recognized in
cost of sales. We expect this program will be substantially completed by the end
of 2021.
We began realizing plan-related savings in 2021 and expect to achieve annual
pre-tax savings of $13 million to $16 million once the plan is fully
implemented.
Anticipated charges and pre-tax savings related to restructuring programs and
other similar cost savings initiatives
In addition to the Respiratory divestiture plan, described in detail above, we
have ongoing restructuring programs that include the consolidation of our
manufacturing operations (referred to as our 2019, 2018 and 2014 Footprint
realignment plans) and the 2021 Restructuring plan, which is also described
above. We also have similar ongoing activities to relocate certain manufacturing
operations within our OEM segment (the "OEM initiative") that do not meet the
criteria for a restructuring program under applicable accounting guidance;
nevertheless, the activities should result in cost savings (we expect only
minimal costs to be incurred in connection with the OEM initiative). With
respect to the restructuring programs and the OEM initiative, the table below
summarizes charges incurred or estimated to be incurred and estimated annual
pre-tax savings to be realized as follows: (1) with respect to charges (a) the
estimated total charges that will have been incurred once the restructuring
programs and OEM initiative are completed; (b) the charges incurred through
December 31, 2020 ; and (c) the estimated charges to be incurred from January 1,
2021 through the last anticipated completion date of the restructuring programs
and OEM initiative, and (2) with respect to estimated annual pre-tax savings,
(a) the estimated total annual pre-tax savings to be realized once the
restructuring programs and OEM initiative are completed; (b) the estimated
annual pre-tax savings realized based on the progress of the restructuring
programs and OEM initiative through December 31, 2020 ; and (c) the estimated
additional annual pre-tax savings to be realized from January 1, 2021 through
the last anticipated completion date of the restructuring programs and the OEM
initiative.
Estimated charges and pre-tax savings are subject to change based on, among
other things, the nature and timing of restructuring activities and similar
activities, changes in the scope of restructuring programs and the OEM
initiative, unanticipated expenditures and other developments, the effect of
additional acquisitions or dispositions, and other factors that were not
reflected in the assumptions made by management in previously estimating
restructuring and restructuring related charges and estimated pre-tax savings.
Moreover, estimated pre-tax savings constituting efficiencies with respect to
increased costs that otherwise would have resulted from business acquisitions
involve, among other things, assumptions regarding the cost structure and
integration of businesses that previously were not administered by our
management, which are subject to a particularly high degree of risk and
uncertainty. It is likely that estimates of charges and pre-tax savings will
change from time to time, and the table below may reflect changes from amounts
previously estimated. In addition, the table below reflects the estimated
charges and pre-tax savings related to our ongoing programs. Additional details,
including estimated charges expected to be incurred in connection with our
restructuring programs and the anticipated completion dates, are described in
Note 5 to the condensed consolidated financial statements included in this
report.
Pre-tax savings may be realized during, and subsequent to, the completion of the
restructuring program. Pre-tax savings can also be affected by increases or
decreases in sales volumes generated by the businesses impacted by the
consolidation of manufacturing operations; such variations in revenues can
increase or decrease pre-tax savings generated by the consolidation of
manufacturing operations. For example, an increase in sales volumes generated by
the impacted businesses, although likely to increase manufacturing costs, may
generate additional savings with respect to costs that otherwise would have been
incurred if the manufacturing operations were not consolidated.
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--------------------------------------------------------------------------------Ongoing restructuring programs and other similar cost savings initiatives
Actual results through
Estimated Total December 31, 2020 Estimated Remaining
Restructuring charges - ongoing restructuring
plans $102 - $118 $89 $13 - $29
Restructuring charges - Respiratory divestiture
plan 5 - 8 - 5 - 8
Total restructuring charges 107 - 126 89 18 - 37
Restructuring related charges - ongoing restructuring plans 119 - 146 74 45 - 72 Restructuring related charges - Respiratory divestiture plan 19 - 22 - 19 - 22 Total restructuring related charges (1) 138 - 168$74 64 - 94 Total charges$245 -$294 $163 $82 -$131 OEM initiative annual pre-tax savings$6 -$7 $2 $4 -$5 Pre-tax savings - ongoing restructuring plans (2) 81 - 94 32 49
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Total annual pre-tax savings$87 -$101 $34 $53 -$67 (1)Represents charges that are directly related to restructuring programs and principally constitute costs to transfer manufacturing operations to existing lower-cost locations, project management costs and accelerated depreciation, as well as a charge that is expected to be imposed by a taxing authority as a result of our exit from facilities in the authority's jurisdiction. Most of these charges (other than the tax charge) are expected to be recognized as cost of goods sold. (2)Most of the pre-tax savings are expected to result in reductions to cost of goods sold. Restructuring and impairment charges incurred Three Months Ended Nine Months Ended September 26, 2021 September
27, 2020
$ 1.0 $ (3.7) $ 20.5 $ 16.7
Restructuring and impairment charges for the three months ended September 26,
2021 primarily consisted of termination benefits across our various ongoing
restructuring programs.
Restructuring and impairment charges for the nine months ended September 26,
2021 primarily consisted of termination benefits related to the 2021
Restructuring plan and Respiratory divestiture plan and impairment charges of
$6.7 million related to our decision to abandon intellectual property and other
assets, primarily associated with our respiratory product portfolio that was not
transferred to Medline as part of the Respiratory business divestiture.
Gain on sale of business
Three Months Ended Nine Months Ended
September 26, September 26,
2021 September 27, 2020 2021 September 27, 2020
Gain on sale of business $ (91.2) $ - $ (91.2) $ -
During the three and nine months ended September 26, 2021 , we recognized a gain
related to the Respiratory business divestiture. There were no such gains in the
prior year periods.
Interest expense
Three Months Ended Nine Months Ended
September 26, 2021 September
27, 2020
$ 12.0 $ 16.7 $ 45.0 $ 47.8
Average interest rate on debt 2.0 % 2.5 % 2.3 % 2.5 %
The decreases in interest expense for the three and nine months ended
24
--------------------------------------------------------------------------------Loss on extinguishment of debt
Three Months Ended Nine Months Ended
September 26, September 26,
2021 September 27, 2020 2021 September 27, 2020
Loss on extinguishment of debt $ - $ - $ 13.0 $ -
On June 1, 2021 , we prepaid the $400 million aggregate outstanding principal
amount under the 2026 Notes. In addition to the prepayment of principal, we paid
to the holders of the 2026 Notes a $9.8 million prepayment make-whole amount
plus accrued and unpaid interest. We recorded the prepayment make-whole amount
and a $3.2 million write-off of unamortized debt issuance costs as a loss on
extinguishment of debt.
Taxes on income from continuing operations
Three Months Ended Nine Months Ended
September 26, 2021 September
27, 2020
13.0 % (0.8) % 14.1 % 7.8 %
The effective income tax rates for the three and nine months ended September 26,
2021 reflect tax expense associated with the Respiratory business divestiture.
The effective income tax rates for the three and nine months ended September 27,
2020 reflect non taxable charges related to a decrease in the fair value of the
NeoTract and Essential Medical contingent consideration liabilities and
significant net tax benefit related to share-based compensation.
Segment Financial Information
Segment net revenues
Three Months Ended Nine Months Ended
September 27, September 26, September 27,
September 26, 2021 2020 % Increase/(Decrease) 2021 2020 % Increase/(Decrease)
Americas $ 417.3 $ 375.0 11.3 $ 1,207.6 $ 1,045.6 15.5
EMEA 143.9 135.7 6.1 442.3 423.4 4.5
Asia 75.0 68.2 9.9 219.2 188.4 16.4
OEM 64.1 49.4 29.7 178.5 168.6 5.9
Segment net revenues $ 700.3 $ 628.3 11.5 $ 2,047.6 $ 1,826.0 12.1
Segment operating profit
Three Months Ended Nine Months Ended
September 27, September 26, September 27,
September 26, 2021 2020 % Increase/(Decrease) 2021 2020 % Increase/(Decrease)
Americas $ 112.5 $ 121.8 (7.6) $ 301.4 $ 310.3 (2.8)
EMEA 19.6 17.7 10.5 65.9 53.0 24.2
Asia 27.5 10.1 172.7 65.6 34.0 93.3
OEM 14.4 8.2 73.4 42.2 35.6 18.4
Segment operating profit (1) $ 174.0 $ 157.8 10.2 $ 475.1 $ 432.9 9.8
(1)See Note 14 to our condensed consolidated financial statements included in
this report for a reconciliation of segment operating profit to our condensed
consolidated income from continuing operations before interest and taxes.
Comparison of the three and nine months ended September 26, 2021 and
September 27, 2020
Americas
Americas net revenues for the three months ended September 26, 2021 increased
$42.3 million , or 11.3%, compared to the prior year period, which was primarily
attributable to net revenues of $15.6 million generated by the Z-Medica
acquisition, a $9.9 million increase in new product sales and price increases.
The increase in net revenue was also the result of sales made to Medline
pursuant to the MSTA.
Americas net revenues for the nine months ended September 26, 2021 increased
$162.0 million , or 15.5%, compared to the prior year period, which was primarily
attributable to a $72.9 million increase in sales volumes of
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existing products largely stemming from the impact that the COVID-19 pandemic
had on the prior year, net revenues of $44.8 million generated by the Z-Medica
acquisition and, to a lesser extent, an increase in new product sales.
Americas operating profit for the three and nine months ended September 26, 2021
decreased $9.3 million , or 7.6% and $8.9 million , or 2.8%, respectively,
compared to the corresponding prior year period, which was primarily
attributable to a benefit recognized in the prior year resulting from decreases
in the estimated fair value of our contingent consideration liabilities stemming
from the impacts of the COVID-19 pandemic and expenses incurred by Z-Medica,
partially offset by an increase in gross profit resulting from higher sales.
In July 2021 , the Center for Medicare and Medicaid Services (CMS) published its
proposed Physician Fee Schedule (PFS) and proposed Outpatient Prospective
Payment System (OPPS) rates for calendar year 2022. The proposed rules, among
other things, provide for updates with respect to the rates used to determine
the reimbursement amounts received by healthcare providers across a broad range
of healthcare procedures, including our UroLift System procedure. Specifically,
for UroLift procedures performed in a physician office setting, the
reimbursement rates outlined in the proposed PFS are 19-21% lower as compared to
2021, while the proposed reimbursement rates outlined in the OPPS for UroLift
procedures performed in the hospital outpatient or ambulatory surgical center
setting are 3% higher as compared to 2021. During the 60-day public comment
period for the proposed rules, we engaged with industry associations and other
key stakeholders to reiterate the benefits of the UroLift System and the
importance of compensating physicians appropriately for performing procedures
such as UroLift in lower cost settings, such as the physician's office, and to
advocate for reimbursement rates higher than what has been proposed. We
anticipate the final rules to be published during the fourth quarter of 2021. In
the event
the proposed reimbursement rates for the UroLift procedure are adopted in the
final rules, we may experience an adverse effect on sales of our UroLift System
to urologists performing the procedure in the office setting. From the beginning
of 2016 through September 2021 , approximately two-thirds of Urolift procedures
have been performed in a hospital outpatient or ambulatory surgical center
setting with the remainder being performed in a physician office setting.
EMEA
EMEA net revenues for the three months ended September 26, 2021 increased $8.2
million , or 6.1%, compared to the prior year period, which was primarily
attributable to a $6.9 million increase in sales volumes of existing products
largely stemming from the impact that the COVID-19 pandemic had on the prior
year and $3.2 million of favorable fluctuations in foreign currency exchange
rates, partially offset by a $4.5 million decrease in sales volumes attributed
to the Respiratory business divestiture.
EMEA net revenues for the nine months ended September 26, 2021 increased $18.9
million , or 4.5%, compared to the prior year period, which was primarily
attributable to $30.3 million of favorable fluctuations in foreign currency
exchange rates, partially offset by a $13.2 million decrease in sales volumes of
existing products largely stemming from the COVID-19 pandemic.
EMEA operating profit for the three months ended September 26, 2021 increased
$1.9 million , or 10.5%, compared to the prior year period, which was primarily
attributable to an increase in gross profit resulting from higher sales,
partially offset by an increase in EU MDR costs within research and development.
EMEA operating profit for the nine months ended September 26, 2021 increased
$12.9 million , or 24.2%, compared to the prior year period, which was primarily
attributable to favorable fluctuations in foreign currency exchange rates,
partially offset by an increase in EU MDR costs within research and development.
Asia
Asia net revenues for the three months ended September 26, 2021 increased $6.8
million , or 9.9%, compared to the prior year period, which was primarily
attributable to a $5.1 million increase in sales volumes of existing products
largely stemming from the impact that the COVID-19 pandemic had on the prior
year, favorable fluctuations in foreign currency exchange rates and new product
sales, partially offset by a decrease in sales volumes attributed to the
Respiratory business divestiture.
Asia net revenues for the nine months ended September 26, 2021 increased $30.8
million , or 16.4%, compared to the prior year period, which was primarily
attributable to $12.9 million of favorable fluctuations in foreign currency
exchange rates, a $10.8 million increase in sales volumes of existing products
largely stemming from the impact that the COVID-19 pandemic had on the prior
year and a $7.1 million increase in new product sales,
Asia operating profit for the three and nine months ended September 26, 2021
increased $17.4 million , or 172.7%, and $31.6 million , or 93.3%, respectively,
compared to the corresponding prior year period, which was
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primarily attributable to an increase in gross profit resulting from higher
sales, favorable fluctuations in foreign currency exchange rates and a benefit
from the reversal of a contingent liability related to tariffs imposed by
Chinese authorities, which is described further in Note 13 to the condensed
consolidated financial statements.
OEM
OEM net revenues for the three months ended September 26, 2021 increased $14.7
million , or 29.7%, compared to the prior year period, which was primarily
attributable to a $12.4 million increase in sales volumes of existing products
largely stemming from the impact that the COVID-19 pandemic had on the prior
year and a $2.1 million increase in new product sales.
OEM net revenues for the nine months ended September 26, 2021 increased $9.9
million , or 5.9%, compared to the prior year period, which was primarily
attributable to a $4.1 million increase in new product sales, net revenues of
$4.0 million generated by the HPC acquisition and $2.5 million of favorable
fluctuations in foreign currency exchange rates.
OEM operating profit for the three months ended September 26, 2021 increased
$6.2 million , or 73.4%, compared to the prior year period, which was primarily
attributable to an increase in gross profit resulting from higher sales.
OEM operating profit for the nine months ended September 26, 2021 increased $6.6
million or 18.4%. compared to the prior year period, which was primarily
attributable to an increase in gross profit resulting from higher sales and HPC
acquisition costs incurred in the prior period.
Liquidity and Capital Resources
While the potential economic impact resulting from the COVID-19 pandemic and the
extent and duration of the pandemic's impact are difficult to assess or predict,
the impact of the pandemic on the global financial markets may reduce our
ability to access capital, which could negatively impact our short-term and
long-term liquidity. In consideration of the significant uncertainty created by
the COVID-19 pandemic, we are continuing to assess our liquidity and anticipated
capital requirements. Notwithstanding the significant uncertainty created by the
COVID-19 pandemic, we believe our cash flow from operations, available cash and
cash equivalents and borrowings under our revolving credit facility will enable
us to fund our operating requirements, capital expenditures and debt obligations
for the next 12 months and the foreseeable future. We have net cash provided by
United States based operating activities as well as non-United States sources of
cash available to help fund our debt service requirements in the United States .
We manage our worldwide cash requirements by monitoring the funds available
among our subsidiaries and determining the extent to which we can access those
funds on a cost effective basis.
In consideration of the ongoing COVID-19 pandemic, we are closely monitoring our
receivables and payables. To date, we have not experienced significant payment
defaults by, or identified other collectability concerns with, our customers,
and we have sufficient lending commitments in place to enable us to fund our
anticipated additional operating needs.
Cash Flows
Net cash provided by operating activities from continuing operations was $450.5
million for the nine months ended September 26, 2021 as compared to net cash
provided by operating activities of $241.5 million for the nine months ended
September 27, 2020 . The $209.0 million increase was primarily attributable to
favorable operating results, lower contingent consideration payments, lower
payroll and benefit related payments, and $33.8 million in proceeds received as
part of the initial phase of the Respiratory business divestiture attributed to
performance obligations under the MSTA. The increases in operating cash flows
was partially offset by an increase in tax payments related to the Respiratory
business divestiture.
Net cash provided from investing activities from continuing operations was
$167.7 million for the nine months ended September 26, 2021 , primarily consisted
$225.9 million in proceeds from the sale of the Respiratory business
divestiture, capital expenditures of $52.1 million and net interest proceeds on
swaps designated as net investment hedges of $9.3 million .
Net cash used in financing activities from continuing operations was $500.4
million for the nine months ended September 26, 2021 , primarily consisted of a
reduction in borrowings of $434.0 million , primarily resulting from the
redemption of the $400 million 2026 Notes, dividend payments of $47.7 million
and contingent consideration payments of $31.4 million .
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During the third quarter of 2021, we repaid$259 million of borrowings under our revolving credit facility using funds primarily consisting of proceeds we received from the initial close of the Respiratory business divestiture. OnApril 29, 2021 , we issued a notice of redemption to holders of our outstanding$400 million aggregate principal amount of the 2026 Notes. Pursuant to the notice of redemption, the 2026 Notes were redeemed onJune 1, 2021 (the "Redemption Date") using borrowings under the revolving credit facility and cash on hand at a redemption price equal to 102.438% of the principal amount of the 2026 Notes plus accrued and unpaid interest up to, but not including, the Redemption Date (the "Redemption Price"). We recognized a loss on extinguishment of debt of$13.0 million as a result of the redemption of the 2026 Notes. The indenture governing our 4.625% Senior Notes due 2027 (the "2027 Notes") and 4.25% Senior Notes due 2028 (the "2028 Notes") contain covenants that, among other things and subject to certain exceptions, limit or restrict our ability, and the ability of our subsidiaries, to create liens; consolidate, merge or dispose of certain assets; and enter into sale leaseback transactions. As ofSeptember 26, 2021 , we were in compliance with these requirements. The obligations under the Credit Agreement, the 2027 Notes and 2028 Notes are guaranteed (subject to certain exceptions) by substantially all of our material domestic subsidiaries, and the obligations under the Credit Agreement are (subject to certain exceptions and limitations) secured by a lien on substantially all of the assets owned by us and each guarantor. Summarized Financial Information -Obligor Group The 2026 Notes and 2027 Notes (collectively, the "Senior Notes") are issued byTeleflex Incorporated (the "Parent Company"), and payment of the Parent Company's obligations under the Senior Notes is guaranteed, jointly and severally, by an enumerated group of the Parent Company's subsidiaries (each, a "Guarantor Subsidiary" and collectively, the "Guarantor Subsidiaries"). The guarantees are full and unconditional, subject to certain customary release provisions. Each Guarantor Subsidiary is directly or indirectly 100% owned by the Parent Company. Summarized financial information for the Parent and Guarantor Subsidiaries (collectively, the "Obligor Group ") as ofSeptember 26, 2021 andDecember 31, 2020 and for the nine months endedSeptember 26, 2021 is as follows: Nine Months Ended September 26, 2021 Obligor Group (excluding Obligor Group Intercompany Intercompany) Net revenue$ 1,434.8 $ 146.7 $ 1,288.1 Cost of goods sold 763.5 256.4 507.1 Gross profit 671.3 (109.7) 781.0 Income from continuing operations 85.6 (14.5) 100.1 Net income 85.2 (14.5) 99.7 September 26, 2021 December 31, 2020 Obligor Group Obligor Group Obligor (excluding Obligor (excluding Group Intercompany Intercompany) Group Intercompany Intercompany) Total current assets$ 929.1 $ 104.1 $ 825.0$ 806.9 $ 49.1 $ 757.8 Total assets 5,691.7 1,382.7 4,309.0 5,867.2 1,491.4 4,375.8 Total current liabilities 798.5 519.9 278.6 796.7 541.3 255.4 Total liabilities 3,776.9 873.7 2,903.2 4,206.0 849.6 3,356.4 The same accounting policies as described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 are used by the Parent Company and each of its subsidiaries in connection with the summarized financial information presented above. The Intercompany column in the table above represents transactions between and among theObligor Group and non-guarantor subsidiaries (i.e. those subsidiaries of the Parent Company that have not guaranteed payment of the Senior Notes). Obligor investments in non-guarantor subsidiaries and any related activity are excluded from the financial information presented above. 28
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Critical Accounting Estimates The preparation of 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. In our Annual Report on Form 10-K for the year endedDecember 31, 2020 , we provided disclosure regarding our critical accounting estimates, which are reflective of significant judgments and uncertainties, are important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions and conditions. New Accounting Standards See Note 2 to the condensed consolidated financial statements included in this report for a discussion of recently issued accounting guidance, including estimated effects, if any, of adoption of the guidance on our financial statements. Forward-Looking Statements All statements made in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "will," "would," "should," "guidance," "potential," "continue," "project," "forecast," "confident," "prospects" and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about our business and the industry and markets in which we operate. These statements are not guarantees of future performance and are subject to risks and uncertainties, which are difficult to predict. Therefore, actual outcomes and results may differ materially from those expressed or implied by these forward-looking statements due to a number of factors, including the adverse economic conditions associated with the COVID-19 global health pandemic and the associated financial crisis, stay-at-home and other orders, which could cause material delays and cancellations of elective procedures, curtailed or delayed spending by customers and result in disruptions to our supply chain, closure of our facilities, delays in product launches or diversion of management and other resources to respond to the COVID-19 pandemic; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 pandemic disrupts local economies and causes economies to enter prolonged recessions; changes in business relationships with and purchases by or from major customers or suppliers; delays or cancellations of shipments; demand for and market acceptance of new and existing products; our inability to provide products to our customers, which may be due to, among other things, events that impact key distributors, suppliers and vendors that sterilize our products; our inability to integrate acquired businesses into our operations, realize planned synergies and operate such businesses profitably in accordance with our expectations; our inability to effectively execute our restructuring plans and programs; our inability to realize anticipated savings from restructuring plans and programs; the impact of enacted healthcare reform legislation and proposals to amend, replace or repeal the legislation; changes in Medicare, Medicaid and third party coverage and reimbursements; the impact of tax legislation and related regulations; competitive market conditions and resulting effects on revenues and pricing; increases in raw material costs that cannot be recovered in product pricing; global economic factors, including currency exchange rates, interest rates, trade disputes and sovereign debt issues; difficulties in entering new markets; and general economic conditions. For a further discussion of the risks relating to our business, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . We expressly disclaim any obligation to update these forward-looking statements, except as otherwise specifically stated by us or as required by law or regulation.
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