Teleflex Incorporated — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report. Teleflex is a global medical-device company; results primarily reflect single-use products used in critical care and surgical procedures.
Key financial results
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $1,696.3 million | $1,551.0 million |
| Gross profit / gross margin | $838.9 million / 49.5% | $748.2 million / 48.2% |
| Income (loss) from continuing operations | $152.2 million | $(181.8) million |
| Diluted EPS from continuing operations | $3.46 | $(4.47) |
| Operating cash flow from continuing operations | $229.9 million | $193.9 million |
| Capital expenditures | $63.6 million | $65.4 million |
| Free cash flow, company-defined | $166.3 million | $128.5 million |
Revenue increased 9.4% reported and 9.0% at constant currency. Growth was substantially acquisition-driven: acquired businesses contributed about $121.1 million of 2013 revenue. Gross margin expanded 130 basis points. FY2012 results included a $332.1 million goodwill impairment charge, which drove the reported continuing-operations loss and makes the year-over-year profit comparison unusually favorable to 2013.
Fourth quarter: Revenue was $450.5 million versus $419.1 million in Q4 2012. Continuing-operations income was $35.3 million versus $30.6 million; diluted EPS from continuing operations was $0.78 versus $0.72.
Business and material changes
- Critical Care generated $1,182.7 million in revenue, up 13.7%; Surgical Care generated $306.5 million, up 5.3%. Cardiac Care declined 4.5% to $75.9 million, and OEM and Development Services declined 6.5% to $131.2 million.
- Teleflex acquired Vidacare, Ultimate Medical and Eon Surgical in 2013 for aggregate consideration of approximately $307 million. The acquisitions expanded its vascular access, airway management and minimally invasive surgery portfolios.
- FY2013 segment operating profit increased 14.4% to $271.7 million. EMEA and Asia operating profit rose 39.2% and 19.1%, respectively; OEM operating profit declined 13.7%.
- R&D expense increased to $65.0 million from $56.3 million. SG&A rose to $502.2 million, including acquisition-related costs and $11.5 million of medical-device excise tax.
Cash, debt and liquidity
- Cash and cash equivalents were $432.0 million at year-end, of which $374.3 million was held by foreign subsidiaries. Current assets were $1,200.6 million and current liabilities $635.1 million.
- Net debt was $902.7 million, compared with $692.7 million in 2012; net debt to total capital rose to 32% from 28%. The debt table reports $1,334.7 million of total borrowings before the $48.4 million convertible-note discount. The company’s reported carrying debt, including securitization borrowings, was approximately $1,286 million.
- Teleflex refinanced its credit facility with an $850 million revolving facility due 2018. At year-end, $680 million was drawn, with approximately $5.9 million of standby letters of credit outstanding. The company reported compliance with its debt covenants, including leverage of 3.60:1 against a 4.0:1 limit.
- Cash from operations exceeded investing needs only before acquisitions: investing cash outflow was $372.6 million, including $309.0 million of acquisition-related payments. Financing activities provided $232.6 million, including new borrowings; dividends paid were $55.9 million.
- The $400 million 3.875% convertible notes due 2017 became convertible after the share-price threshold was met and were classified as current at year-end. Teleflex elected net settlement, which may require cash payment of principal; management said it expected available cash and credit access to be sufficient.
Outlook, commentary and risks
- No specific consolidated revenue or earnings guidance for 2014 is provided in the filing. Management expected $15–$20 million of annual pretax savings from the LMA integration by the end of 2014, and $7–$10 million from a separate restructuring program by the end of 2015.
- Management said it expected liquidity to fund operations, capital expenditures and debt obligations over the next 12 months, while noting continuing economic and credit risks, especially in parts of Europe. Net receivables in Italy, Spain, Portugal and Greece totaled $97.9 million; average collection time was 260 days.
- Execution risks include integrating acquisitions, realizing restructuring savings and developing acquired technologies. Teleflex recorded $7.4 million of in-process R&D impairment charges in 2013. The Semprus technology remained under development, with approximately $42 million of related net assets and potential for material impairment if technical issues are not resolved.
- Other material risks include medical-device regulation and product liability, reimbursement and pricing pressure, foreign exchange and raw-material costs, manufacturing or supply interruptions, cybersecurity, and environmental and tax contingencies. Recorded litigation reserves were $6.8 million; the company said current matters were not expected to be material, while acknowledging an unfavorable outcome could be adverse.
- The company reported effective internal control over financial reporting and an unqualified audit opinion. Vidacare was excluded from management’s internal-control assessment because it was acquired late in 2013.
Investor verification priorities
- Separate organic performance from acquired revenue, especially the contribution from LMA and other 2013 acquisitions.
- Review the convertible notes’ current classification, potential cash settlement, available revolver capacity and covenant headroom.
- Track collections, credit-loss allowances and exposure to public healthcare systems in Southern Europe.
- Assess whether projected restructuring savings are achieved and whether integration or acquired-technology issues lead to additional charges.
- Confirm future segment trends, particularly the declines in Cardiac Care and OEM, and the sustainability of gross-margin improvement.