SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K
TELEFLEX INCORPORATEDANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 25, 2005TABLE OF CONTENTS
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Information Concerning Forward-Looking StatementsAll statements made in this Annual Report on Form 10-K, 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 involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements due to a number of factors, including changes in business relationships with and purchases by or from major customers or suppliers, including delays or cancellations in shipments; demand for and market acceptance of new and existing products; our ability to integrate acquired businesses into our operations, realize planned synergies and operate such businesses profitably in accordance with expectations; our ability to effectively execute our restructuring and divestiture program; 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 and interest rates; difficulties entering new markets; and general economic conditions. For a further discussion of the risks that our business is subject to, see “Item 1A. Risk Factors” of this Annual Report on Form 10-K. We expressly disclaim any intent or obligation to update these forward-looking statements, except as otherwise specifically stated by us.2
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PART I" -->
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turers, our motion systems also serve a wide range of other markets and applications. For example, we are a large supplier of safety cable and light-duty motion controls used in mobile power equipment, and our heavy-lift products, which include heavy-duty cables, hoisting and rigging equipment, are used in oil drilling and other industrial markets. Power and Vehicle Management Systems: Products in this category represented 18 percent of Commercial Segment revenues in 2005. Power and vehicle management systems include: mobile auxiliary power systems, fuel management systems and components, industrial actuation products and components, instrumentation and electronic controls for engine and vehicle management, diagnostics and monitoring. These products generally address the need for greater fuel efficiency, reduced emissions, mobile power and improved connectivity of engine and vehicle systems. Our major products in this category include mobile auxiliary power units used for power and climate control in heavy duty trucks, industrial vehicles and locomotives, instrumentation and electronic products for marine and industrial vehicles and components and systems for the use of alternative fuels in military, industrial and automotive applications. Fluid Management Systems: Products in this category represented 11 percent of Commercial Segment revenues in 2005. Fluid management products include premium-branded, custom-manufactured and bulk hose and related assemblies that are generally custom-designed and manufactured to address specific requirements for vapor permeation, durability and flexibility. Our fluid management products can be found in automobiles, recreational boats, remote sensing devices, high-purity food processing, underground fuel transfer, compressed natural gas applications and in a number of other industrial product and equipment applications. The largest percentage of fluid management systems are sold to automotive and industrial customers. The following table sets forth revenues for 2005, 2004 and 2003 by significant product category for the Commercial Segment.
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Marketing: The majority of our Commercial Segment products are sold to original equipment manufacturers through a direct sales force of field representatives and technical specialists. We also market our marine products through dealers, distributors and retail outlets serving owners of recreational boats. Our mobile auxiliary power units and climate control units are marketed by our field sales force to dealers and owners of heavy duty trucks and industrial vehicles. Fuel systems and components include custom applications sold directly to military customers and to the automotive aftermarket in Europe. Medical Our Medical Segment businesses develop, manufacture and distribute disposable medical products, surgical instruments, medical devices and specialty devices for healthcare providers and medical equipment manufacturers. Our products are largely sold and distributed to hospitals and healthcare providers in a range of clinical settings. These products are provided through business operating units organized around product category, market knowledge, geographical location and technical expertise. Major manufacturing operations are located in North America, Europe and Asia. Markets for these products are influenced by a number of factors including demographics, utilization and reimbursement patterns in the worldwide healthcare market. Disposable Medical Products: This is the largest product category in the Medical Segment, representing 61 percent of segment revenues in 2005. Our disposable medical products are generally used in the clinical specialty areas of anesthesia, respiratory care and urology. Anesthesia and respiratory care products include those used in airway management, oxygen administration and therapy, humidification and aerosol therapy. Urology products include: catheters, drain and irrigation supplies. Our products are marketed under the brand names of Rusch, HudsonRCI, Gibeck and Sheridan. The large majority of sales for disposable medical products are made to the hospital/ healthcare provider market with a smaller percentage to the home health market and medical device manufacturers. Surgical Instruments and Medical Devices: Products in this category represented 31 percent of Medical Segment revenues in 2005. Our surgical instrument and medical device products include: hand-held instruments for general and specialty surgical procedures, devices used in cardiovascular, orthopedic and general surgery and minimally-invasive diagnostic and therapeutic care. We also produce and market a range of ligation and closure products. In addition, we provide instrument management and sterilization services. We market surgical instruments and medical devices under the Deknatel, Pleur-evac, Pilling and Weck brand names. Specialty Devices: Specialty devices represented 8 percent of Medical Segment revenues in 2005. Products in this category include custom-designed and manufactured specialty instruments for cardiovascular and orthopedic procedures, specialty sutures, microcatheters, introducers and guidewires. We also design and manufacture specialty devices and instruments for industry leading medical device manufacturers and provide them with outsourcing services. Our brands include Beere, KMedic and Deknatel. Specialty devices are generally marketed to medical device manufacturers. The following table sets forth revenues for 2005, 2004 and 2003 by significant product category for the Medical Segment.
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The following table sets forth the percentage of revenues by end market for 2005 for the Medical Segment.
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our systems and other related aircraft controls, including canopy and door actuators, cargo winches and flight controls. The following table sets forth revenues for 2005, 2004 and 2003 by significant product category for the Aerospace Segment.
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and creative ability of our engineering personnel, the know-how and skill of our manufacturing personnel and the strength and scope of our sales, service and distribution networks.Patents and Trademarks We own a portfolio of patents, patents pending and trademarks. We also license various patents and trademarks. Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. Trademark rights may potentially extend for longer periods of time and are dependent upon national laws and use of the marks. All capitalized product names throughout this document are trademarks owned by, or licensed to, us or our subsidiaries. Although these have been of value and are expected to continue to be of value in the future, we do not consider any single patent or trademark, except for the Teleflex brand, to be material to the operation of our business.Suppliers and Materials Materials used in the manufacture of our products are purchased from a large number of suppliers in diverse geographic locations. We are not dependent on any single supplier for a substantial amount of the materials used or components supplied for our overall operations. Most of the materials and components we use are available from multiple sources and where practical, we attempt to identify alternative suppliers. Volatility in commodity markets, particularly steel and plastic resins, can have a significant impact on the cost of producing certain of our products. We cannot be assured of successfully passing these cost increases through to all of our customers, particularly OEMs.Seasonality A portion of our revenues, particularly in the Commercial and Medical segments, are subject to seasonal fluctuations. Revenues in the automotive and industrial markets are generally reduced in the third quarter of each year as a result of preparations by OEM manufacturers for the upcoming model year. In addition, marine aftermarket revenues generally increase in the second quarter as boat owners prepare their watercraft for the upcoming season. Incidence of flu and other disease patterns as well as the frequency of elective medical procedures affect revenues related to disposable medical products.Employees We employed approximately 20,400 full-time and temporary employees at December 25, 2005. Of these employees, approximately 8,100 were employed in the United States and 12,300 in countries outside of the United States. Less than 10 percent of our employees in the United States were covered by union contracts. We have government-mandated collective-bargaining arrangements or union contracts that cover employees in other countries. We believe we have good relationships with our employees.Investor Information We are subject to the informational requirements of the Securities Exchange Act of 1934. Therefore, we file reports and information, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy and information statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically. You can access financial and other information in the Investors section of our Web site. The address is www.teleflex.com. We make available through our Web site, free of charge, copies of our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports8
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filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. The information on the Web site listed above is not and should not be considered part of this Annual Report on Form 10-K and is intended to be an inactive textual reference only. We are a Delaware corporation organized in 1943. Our executive offices are located at 155 South Limerick Road, Limerick, PA 19468. Our telephone number is (610) 948-5100.EXECUTIVE OFFICERS The names and ages of all of our executive officers as of February 21, 2006 and the positions and offices held by each such officer are as follows:
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of organizations. From June 1994 until November 2001, Mr. Miller was Senior Vice President and General Counsel for Aramark Uniform Services. Mr. Gordon has been Senior Vice President — Corporate Development since June 2005. From December 2000 to June 2005, Mr. Gordon was Vice President — Corporate Development. Prior to December 2000, Mr. Gordon was Director of Business Development. Mr. Northfield has been the President of Teleflex Commercial since June 2005. From 2004 to 2005, Mr. Northfield was the President of Teleflex Automotive and the Vice President of Strategic Development. Mr. Northfield held the position of Vice President of Strategic Development from 2001 to 2004. Prior to 2001, Mr. Northfield was Vice President and General Manager of North American operations of Morse Controls, a manufacturer of performance and control systems and aftermarket parts for marine and industrial applications, which was acquired by Teleflex in 2001. Mr. Whittaker has been the President of Teleflex Medical since April 2003. Prior to joining Teleflex, Mr. Whittaker was the President of the Respiratory Division of Tyco Healthcare, a company engaged in the manufacture, distribution and servicing of medical devices. Mr. Suddarth has been the President of Teleflex Aerospace since July 2004. From 2003 to 2004, Mr. Suddarth was the President of Techsonic Industries Inc., a subsidiary of Teleflex that manufactured underwater sonar and video viewing equipment which was divested in 2004. Mr. Suddarth was the Chief Operating Officer of AMF Bowling Products, Inc., a bowling equipment manufacturer, from 2001 to 2003. Prior to 2001, Mr. Suddarth was President of Morse Controls, a manufacturer of performance and control systems and aftermarket parts for marine and industrial applications, which was acquired by Teleflex in 2001. Our officers are elected annually by the Board of Directors at the first meeting of the Board held after our annual stockholders meeting. Each officer serves at the pleasure of the Board until their respective successors have been elected.ITEM 1A. RISK FACTORS" -->
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We are subject to risks associated with ournon-U.S. operations. Although no material concentration of our manufacturing operations exists in any single country, we have significant manufacturing operations outside the United States, including entities that are not wholly-owned and other alliances. As of December 25, 2005, approximately 42% of our total assets and 55% of our total revenues were attributable to products distributed from our operations outside the U.S. Our international operations are subject to varying degrees of risk inherent in doing business outside the U.S., including: •exchange controls and currency restrictions; •trade protection measures and import or export requirements; •subsidies or increased access to capital for firms who are currently or may emerge as competitors in countries in which we have operations; •potentially negative consequences from changes in tax laws; •differing labor regulations; •differing protection of intellectual property; and •unsettled political conditions and possible terrorist attacks against American interests. These and other factors may have a material adverse effect on our international operations or on our business, results of operations and financial condition. Our products are typically integrated into other manufacturers’ products. As a result changes in demand for our customers’ products may adversely affect our revenues on short notice. Many of our customers in the Commercial and Aerospace segments, including OEMs, integrate our products into products our customers sell. Our customers also generally have no obligation to purchase any minimum quantity of product from us and may terminate our arrangement on short notice, typically 30 to 90 days, sometimes less. Our reported backlog may not be realized as revenues. Revenues could materially decline if these customers experience a reduction in demand for their products or cancel a significant number of contracts and we cannot replace them with similar arrangements. Customers in our Medical Segment depend on third party reimbursement. Demand for some of our medical products is impacted by the reimbursement to our customers of patients’ medical expenses by government healthcare programs and private health insurers in the countries where we do business. Internationally, medical reimbursement systems vary significantly, with medical centers in some countries having fixed budgets, regardless of the level of patient treatment. Other countries require application for, and approval of, government or third party reimbursement. Without both favorable coverage determinations by, and the financial support of, government and third party insurers, the market for some of our medical products could be impacted. We cannot be sure that third party payors will maintain the current level of reimbursement to our customers for use of our existing products. Adverse coverage determinations or any reduction in the amount of this reimbursement could harm our business. In addition, through their purchasing power, these payors often seek discounts, price reductions or other incentives from medical products suppliers. Uncertainties regarding future healthcare policy, legislation and regulations, as well as private market practices, could affect our ability to sell our products in commercially acceptable quantities at profitable prices. Foreign currency exchange rate, commodity price and interest rate fluctuations may adversely affect our results. We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, commodity prices and interest rates. We expect revenue from products manufactured in, and sold into,non-U.S. markets to continue to represent a significant portion of our net revenue. Our consoli-11
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dated financial statements reflect translation of items denominated innon-U.S. currencies to U.S. dollars, our reporting currency. When the U.S. dollar strengthens or weakens in relation to the foreign currencies of the countries where we sell or manufacture our products, such as the euro, our U.S. dollar-reported revenue and income will fluctuate. Although we maintain a currency hedging program to reduce the effects of this fluctuation, changes in the relative values of currencies occur from time to time and may, in some instances, have a significant effect on our results of operations. Many of our products have significant steel and plastic resin content. We also use quantities of other commodities, including copper and zinc. We monitor these exposures as an integral part of our overall risk management program. However, volatility in the prices of these commodities could increase the costs of our products and services. We may not be able to pass on these costs to our customers and this could have a material adverse effect on our results of operations and cash flows. We depend on our ability to develop new products. The future success of our business will depend, in part, on our ability to design and manufacture new competitive products and to enhance existing products, including developing electronic technology to replace or improve upon mechanical technology. This product development may require substantial investment by us. There can be no assurance that unforeseen problems will not occur with respect to the development, performance or market acceptance of new technologies or products, such as the inability to: •identify viable new products; •obtain adequate intellectual property protection; •gain market acceptance of new products; or •successfully obtain regulatory approvals. Moreover, we may not otherwise be able to successfully develop and market new products. Our failure to successfully develop and market new products could reduce our margins, which would have an adverse effect on our business, financial condition and results of operations. Our technology is important to our success and our failure to protect this technology could put us at a competitive disadvantage. Because many of our products rely on proprietary technology, we believe that the development and protection of these intellectual property rights is important to the future success of our business. In addition to relying on patent, trademark and copyright rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees, to protect our know-how and trade secrets. Despite our efforts to protect proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use these products or technology. The steps we have taken may not prevent unauthorized use of this technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S., and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better technology than us or that current and former employees, contractors and other parties will not breach confidentiality agreements, misappropriate proprietary information and copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. We are subject to a variety of litigation in the course of our business that could cause a material adverse effect on our results of operations and financial condition. 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, contracts, intellectual property, employment and environmental matters. The defense of these lawsuits may divert our management’s attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or12
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settlements, or become subject to injunctions or other equitable remedies, that could cause a material adverse effect on our financial condition and results of operations. The outcome of these legal proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. We may incur material losses and costs as a result of product liability and warranty and recall claims that may be brought against us. We may be exposed to product liability and warranty claims in the event that our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to result, in bodily injury and/or property damage. Accordingly, we could experience material warranty or product liability losses in the future and incur significant costs to defend these claims. In addition, if any of our products are, or are alleged to be, defective, we may be required to participate in a recall of that product if the defect or the alleged defect relates to safety. Product liability, warranty and recall costs may have a material adverse effect on our financial condition and results of operations. Much of our business is subject to extensive regulation and/or oversight by the government and failure to comply with those regulations could have a material adverse effect on our results of operations and financial condition. Numerous national and local government agencies in a number of countries regulate our products and the products sold by our customers incorporating our products. The National Highway Traffic Safety Administration regulates the manufacturing and sale of many of our automotive products. The U.S. Food and Drug Administration regulates the approval, manufacturing and sale and marketing of many of our medical products. The U.S. Federal Aviation Administration and the European Aviation Safety Agency regulate the manufacturing and sale of some of our aerospace products and licenses the operation of our repair stations. Failure to comply with applicable regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product shortages or delays in product manufacturing. We are also subject to numerous foreign, federal, state and local environmental protection and health and safety laws governing, among other things: •the generation, storage, use and transportation of hazardous materials; •emissions or discharges of substances into the environment; and •the health and safety of our employees. These laws and government regulations are complex, change frequently and have tended to become more stringent over time. We cannot provide assurance that our costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our financial condition and results of operations or that we will not be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities. There is the possibility that acquisitions and strategic alliances may not meet revenue and/or profit expectations. As part of our strategy for growth, we have made and may continue to make acquisitions and divestitures and enter into strategic alliances. However, there can be no assurance that these will be completed or beneficial to us. We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully. Acquisitions involve numerous risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management’s attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any particular transaction, there can be no assurance that we will properly ascertain all13
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such risks. In addition, prior acquisitions have resulted, and future acquisitions could result, in the incurrence of substantial additional indebtedness and other expenses. Future acquisitions may also result in potentially dilutive issuances of equity securities. There can be no assurance that difficulties encountered with acquisitions will not have a material adverse effect on our business, financial condition and results of operations. Our workforce covered by collective bargaining and similar agreements could cause interruptions in our provision of services. Approximately 15% of manufacturing revenues are produced by operations for which a significant part of our workforce is covered by collective bargaining agreements and similar agreements in foreign jurisdictions. It is likely that a significant portion of our workforce will remain covered by collective bargaining and similar agreements for the foreseeable future. Strikes or work stoppages could occur that would adversely impact our relationships with our customers and our ability to conduct our business.ITEM 1B. UNRESOLVED STAFF COMMENTS" -->
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matters. Based on information currently available, advice of counsel, established reserves and other resources, we do not believe that any such actions are 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. In February 2004, a jury verdict of $34.8 million was rendered against one of our subsidiaries in a trademark infringement action. In February 2005, the trial judge entered an order rejecting the jury award in its entirety. Both parties have filed notice to appeal on various grounds. While we cannot predict the outcome of the appeals, we will continue to vigorously contest this litigation.ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS" -->
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following table sets forth certain information regarding our repurchases of our equity securities on the open market during the fourth quarter of 2005:
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(3) Free cash flow may be considered a non-GAAP financial measure. Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Securities Exchange Act of 1934 (“1934 Act”) define and prescribe the conditions for use of certain non-GAAP financial information. We use this non-GAAP financial measure for internal managerial purposes, when publicly providing guidance on possible future results, and as a means to evaluateperiod-to-period comparisons. This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP. This non-GAAP financial measure should not be relied upon to the exclusion of GAAP financial measures. This non-GAAP financial measure reflects an additional way of viewing an aspect of our operations that, when viewed with our GAAP results and the accompanying reconciliation to the corresponding GAAP financial measure, provides a more complete understanding of factors and trends affecting our business. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. The following is a reconciliation of this non-GAAP financial measure to the nearest GAAP measure as required under Securities and Exchange Commission rules.
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In January and February 2005, we also completed the sale of two small product lines in our Medical Segment and an industrial cables business in our Commercial Segment. During the second quarter of 2005, we adopted a plan to sell a small medical business. We are actively marketing this business and recognized a loss of $4.6 million in 2005 based upon the excess of the carrying value of the business as compared to the estimated fair value of the business less costs to sell. Additionally, we recognized a $20.9 million reduction in the carrying value of the automotive pedal systems business during 2005. For 2005 and comparable periods, the automotive pedal systems business, the European medical product sterilization business, the small medical business and Sermatech business have been presented in our consolidated financial statements as discontinued operations. During the fourth quarter of 2004, we announced and commenced implementation of our restructuring and divestiture program designed to improve future operating performance and position us for future earnings growth. The planned restructuring actions have included exiting or divesting of non-core or low performing businesses, consolidating manufacturing operations and reorganizing administrative functions to enable businesses to share services. The charges associated with the restructuring program for continuing operations that are included in restructuring costs during 2005 totaled $27.1 million, of which 13%, 76% and 11% were attributable to our Commercial, Medical and Aerospace segments, respectively. On July 25, 2005, our Board of Directors authorized the repurchase of up to $140 million of outstanding Teleflex common stock over twelve months ending July 2006. Under the approved plan, we repurchased 0.7 million shares on the open market during 2005 for an aggregate purchase price of $46.5 million. During the fourth quarter of 2004, we eliminated the one-month lag for certain of our foreign operations to coincide with the timing of reporting for all of our other operations. As a result, our consolidated results for 2004 include the results of those operations for the month of December 2003 and the entire twelve months of 2004, whereas our consolidated results for 2003 include the results of those operations for the month of December 2002 and the first eleven months of 2003 and our consolidated results for 2005 include the results of those operations for the entire twelve months of 2005. This change increased our consolidated revenues for 2004 by $16.9 million and reduced our consolidated income from continuing operations before taxes and minority interest for 2004 by $1.1 million. On October 22, 2004 the American Jobs Creation Act, or AJCA, was signed into law. The AJCA includes a deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The deduction is subject to a number of limitations and complexities, and during the past nine months, we have been analyzing the previous guidance provided by the Treasury Department and the potential impact of applying the repatriation provision to unremitted foreign earnings held by our various controlled foreign corporations. During the fourth quarter 2005, management completed its analysis of the impact of the AJCA and finalized and executed a repatriation plan. Under this plan, we repatriated $304 million of dividends during November and December 2005. Accordingly, we recorded a tax expense of approximately $8.3 million during the fourth quarter of 2005 as a result of this repatriation. This tax expense was offset by a tax benefit of approximately $14.1 million related to excess foreign tax credits generated in connection with this repatriation. Management obtained the requisite corporate officer and Board of Directors approvals of the domestic reinvestment plan within the timeframe specified.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. We have identified the following as critical accounting estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presenta-19
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tion of our financial condition and results of operations and could potentially result in materially different results under different assumptions and conditions. Inventory Utilization Inventories are valued at the lower of average cost or market. Inherent in this valuation are significant management judgments and estimates concerning excess inventory and obsolescence rates. Based upon these judgments and estimates, we record a reserve to adjust the carrying amount of our inventories. We regularly compare inventory quantities on hand against historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities. In assessing historical usage, we also qualitatively assess business trends to evaluate the reasonableness of using historical information as an estimate of future usage. Our inventory reserve was $44.6 million and $61.3 million at December 25, 2005 and December 26, 2004, respectively. Dispositions and currency fluctuations accounted for the majority of this decline. Accounting for Long-Lived Assets The ability to realize long-lived assets is evaluated periodically as events or circumstances indicate a possible inability to recover their carrying amount. Such evaluation is based on various analyses, including undiscounted cash flow and profitability projections that incorporate, as applicable, the impact on the existing business. The analyses necessarily involve significant management judgment. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Accounting for Goodwill and Other Intangible Assets In accordance with Statement of Financial Accounting Standards, or SFAS, No. 142, we perform an annual impairment test of our recorded goodwill. In addition, we test our other indefinite-lived intangible assets for impairment. These impairment tests can be significantly altered by estimates of future performance, long-term discount rates and market price valuation multiples. These estimates will likely change over time. Many of our businesses operate in cyclical industries and the valuation of these businesses can be expected to fluctuate as a result of this cyclicality. Goodwill and other intangible assets totaled $712.0 million and $745.8 million at December 25, 2005 and December 26, 2004, respectively. Accounting for Pensions and Other Postretirement Benefits We provide a range of benefits to eligible employees and retired employees, including pensions and postretirement healthcare. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liability related to these plans. These factors include actuarial assumptions about discount rates, expected rates of return on plan assets, compensation increases, turnover rates and healthcare cost trend rates. We review the actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. Significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement obligations and our future expense. A 50 basis point increase in the assumed discount rate would decrease the total net periodic pension and postretirement healthcare expense for 2005 by approximately $1.1 million and would decrease the projected benefit obligation at December 25, 2005 by approximately $12.3 million. A 50 basis point decrease in the assumed discount rate would increase these amounts by approximately $1.1 million and $13.5 million, respectively. A 50 basis point change in the expected return on plan assets would impact 2005 annual pension expense by approximately $0.6 million. A 1.0% increase in the assumed healthcare trend rate would increase the 2005 benefit expense by approximately $0.1 million and would increase the projected benefit obligation by approximately $2.1 million. A 1.0% decrease in the assumed healthcare trend rate would decrease the 2005 benefit expense20
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by approximately $0.1 million and would decrease the projected benefit obligation by approximately $1.8 million. Accounting for Restructuring Costs Restructuring costs, which include termination benefits, contract termination costs, asset impairments and other restructuring costs are recorded at estimated fair value. Key assumptions in calculating the restructuring costs include the terms that may be negotiated to exit certain contractual obligations, the realizable value of certain assets associated with discontinued product lines and the timing of employees leaving the company. The estimated total cost of the restructuring and divestiture actions which commenced in November 2004 is anticipated to be between $206 million and $211 million. Accounting for Allowance for Doubtful Accounts An allowance for doubtful accounts is maintained for which the collection of the full amount of accounts receivable is doubtful. The allowance is based on our historical experience, the period an account is outstanding, the financial position of the customer and information provided by credit rating services. We review the allowance periodically and adjust it as necessary. Our allowance for doubtful accounts was $10.1 million and $11.3 million at December 25, 2005 and December 26, 2004, respectively. The decline is primarily attributable to currency fluctuations. Product Warranty Liability Most of our sales are covered by warranty provisions for the repair or replacement of qualifying defective items for a specified period after the time of the sales. We estimate our warranty costs and liability based on a number of factors including historical trends of units sold, the status of existing claims, recall programs and communication with customers. Our estimated product warranty liability was $14.2 million and $9.7 million at December 25, 2005 and December 26, 2004, respectively. Accounting for Income Taxes Our annual provision for income taxes and determination of the deferred tax assets and liabilities require management to assess uncertainties, make judgments regarding outcomes and utilize estimates. We conduct a broad range of operations around the world, subjecting us to complex tax regulations in numerous international taxing jurisdictions, resulting at times in tax audits, disputes and potentially litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine estimates of our tax assets and liabilities. To the extent the final outcome differs, future adjustments to our tax assets and liabilities will be necessary. Our income taxes payable was $46.2 million and $23.3 million at December 25, 2005 and December 26, 2004, respectively. We are also required to assess the realizability of our deferred tax assets, taking into consideration our forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and amount of, valuation allowances against our deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.21
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Accounting Standards Issued Not Yet Adopted See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.Results of Operations Discussion of growth from acquisitions reflects the impact of a purchased company up to twelve months beyond the date of acquisition. Activity beyond the initial twelve months is considered core growth. Core growth excludes the impact of translating the results of international subsidiaries at different currency exchange rates from year to year, the impact of eliminating the one-month reporting lag for certain of our foreign operations and the comparable activity of divested companies within the most recent twelve-month period. The following comparisons exclude the impact of certain businesses sold or discontinued, which have been presented in our consolidated financial results as discontinued operations as outlined above. Comparison of 2005 and 2004 Revenues increased 5% in 2005 to $2.51 billion from $2.39 billion in 2004. This increase was due to increases of 5% from core growth and 4% from acquisitions, offset, in part, by decreases of 3% from dispositions and 1% from the impact of eliminating the one-month reporting lag in 2004 for certain of our foreign operations. The Commercial, Medical and Aerospace segments comprised 47%, 33% and 20% of our revenues, respectively. Materials, labor and other product costs as a percentage of revenues increased to 71.8% in 2005 compared with 71.3% in 2004 due primarily to the impact of duplicate costs and inefficiencies related to the transfer of products between facilities in the Commercial Segment associated with the restructuring program. Selling, engineering and administrative expenses (operating expenses) as a percentage of revenues declined to 17.9% in 2005 compared with 20.4% in 2004 due primarily to the continuing reduction of facilities and supporting infrastructure costs and decreased unallocated corporate expenses relative to higher revenues. Interest expense increased in 2005 principally from higher acquisition related debt balances in the first half of 2005. Interest income increased in 2005 primarily due to higher average cash balances, related to increased proceeds received from sales of businesses and assets in 2005. The effective income tax rate was 22.99% in 2005 compared with 13.17% in 2004. The higher rate in 2005 was primarily the result of the increase in foreign earnings for businesses located in higher-taxed jurisdictions. Minority interest in consolidated subsidiaries increased $1.1 million in 2005 due to increased profits from our entities that are not wholly-owned. Net income for 2005 was $138.8 million, an increase of $129.3 million from 2004, due primarily to a 60% decrease in restructuring costs and to the gain on the sale of the Sermatech business. Diluted earnings per share increased $3.15 to $3.39, and includes the net gain on sales of businesses and assets and the cost of restructuring and discontinued operations. During the fourth quarter of 2004, we announced and commenced implementation of our restructuring and divestiture program designed to improve future operating performance and position us for future earnings growth. The actions have included exiting or divesting of non-core or low performing businesses, consolidating manufacturing operations and reorganizing administrative functions to enable businesses to share services. Certain costs associated with our restructuring and divestiture program are not included in restructuring costs. All inventory adjustments that resulted from the restructuring and divestiture program and certain other costs associated with closing out businesses during 2005 and 2004 are included in materials, labor and other product costs and totaled $2.0 million and $17.0 million, respectively. The $2.0 million in costs for 2005 related to our Aerospace Segment. Of the $17.0 million in costs for 2004, $4.5 million and $12.5 million were attributed to our Commercial and Aerospace segments, respectively.22
22
For 2005 and 2004, the charges, including changes in estimates, associated with the restructuring and divestiture program by segment that are included in restructuring costs were as follows:
23
favorable contribution from the HudsonRCI acquisition. Selling, engineering and administrative expenses (operating expenses) as a percentage of revenues increased to 20.4% in 2004 compared with 18.7% in 2003 due to increases relative to sales in the Commercial and Aerospace segments and higher corporate expenses which were impacted by the costs of compliance with the Sarbanes-Oxley Act of 2002 and costs associated with the resolution of a number of legal matters. In 2003, we sold an investment, resulting in apre-tax gain of $3.1 million, or $0.05 per share after tax. In 2004, we sold six non-strategic businesses, resulting in a netpre-tax gain of $2.7 million, or $0.04 per share. Interest expense increased in 2004 principally from higher debt outstanding in connection with the HudsonRCI acquisition, net of repayments and lower borrowing costs. The effective income tax rate was 13.17% in 2004 compared with 24.06% in 2003. The lower rate in 2004 was primarily the result of the benefit associated with the restructuring and divestiture program. Minority interest in consolidated subsidiaries increased $3.1 million in 2004 due to increased profits from our entities that are not wholly-owned. Net income for 2004 was $9.5 million, a decrease of 91% from 2003. Diluted earnings per share decreased 91% to $0.24, and includes the cost of restructuring and discontinued operations.Segment Reviews The following is a discussion of our segment operating results. Additional information regarding our segments is presented in Note 14 to our consolidated financial statements included in this Annual Report on Form 10-K. Commercial Products in the Commercial Segment are manufactured for broad distribution as well as custom fabricated to meet individual customer needs. Consumer spending patterns influence the market trends for products sold to the automotive and marine markets. Automotive cable and shifter products are manufactured primarily for automotive OEMs. Discussion of marine and industrial product lines below includes the manufacturing and distribution of driver controls, motion controls, power and vehicle management systems and fuel management systems to the automotive supply, marine and industrial markets. Comparison of 2005 and 2004 Commercial Segment revenues declined 1% in 2005 to $1.19 billion from $1.20 billion in 2004. The segment generated an increase of 3% from core growth that was more than offset by a 4% decrease from dispositions. The segment benefited from strength in its industrial OEM markets, the contribution of new driver controls and power and vehicle management system products and increased sales of driver and motion controls to automotive OEM markets. These benefits were more than offset by slower sales of products into marine and recreational markets. Commercial Segment operating profit declined 23% in 2005 to $81.1 million from $105.7 million in 2004. This decline primarily reflects lower volume related contributions from higher margin marine and recreational products, the impact of duplicate costs and inefficiencies related to the transfer of products between two Tier 2 automotive supply facilities, the bankruptcy of an automotive supply customer and the impact of divestitures made in 2004. Operating profit as a percent of revenues declined to 6.8% in 2005 from 8.8% in 2004. Assets in the Commercial Segment declined $111.1 million or 12%, primarily due to the impact of currency and business dispositions.24
24
Comparison of 2004 and 2003 Commercial Segment revenues increased 10% in 2004 to $1.20 billion from $1.09 billion in 2003. The improvement was due to increases of 8% from core growth, 4% from currency and 3% from acquisitions, offset, in part, by a 5% decrease from dispositions. Revenue from driver control products sold to OEM’s increased slightly in 2004 compared to 2003, with increases from currency and core growth mostly offset by a decrease from a disposition. For the remainder of the segment, three-fourths of the revenue improvements were the result of core gains. Favorable currency translation provided a majority of the remaining increase; revenues from acquired entities were equivalent to the impact of dispositions. Commercial Segment operating profit declined 5% in 2004 to $105.7 million from $111.5 million in 2003. Marine and industrial operating profit improved on volume gains which were partially offset by a cancellation of automotive alternative fuel programs in North America, pricing pressure in the automotive supplier market and costs related to a new product launch. Operating profit in the automotive cables and shifters product line declined as a result of pricing pressure and increased raw material costs. Operating profit as a percent of revenues declined to 8.8% in 2004 from 10.2% in 2003. Assets in the Commercial Segment increased $31.1 million, as currency and receivable increases in European automotive cable and shifter and United States light-duty cables were tempered by the impact of business dispositions. Medical Products in the Medical Segment generally are required to meet exacting standards of performance and have long product life cycles. Economic influences on revenues relate primarily to spending patterns in the worldwide medical devices and hospital supply market. Comparison of 2005 and 2004 Medical Segment revenues increased 13% in 2005 to $831.1 million from $736.4 million in 2004. This increase was due to increases of 13% from acquisitions and 3% from core growth, offset, in part, by decreases of 2% from the impact of eliminating the one-month reporting lag in 2004 for certain of our foreign operations and 1% from dispositions. Medical Segment revenues increased primarily as a result of the increased sale of disposable medical products, particularly related to the third quarter 2004 acquisition of HudsonRCI, a provider of respiratory care products. Sales of surgical instruments and medical devices increased primarily as a result of new product sales and volume increases for specialty devices sold to medical device manufacturers. Medical Segment operating profit increased 29% in 2005 to $150.0 million from $116.7 million in 2004 driven primarily by the HudsonRCI acquisition and significant improvements in the core business as benefits of the restructuring program began to be recognized. Operating profit as a percent of revenues increased to 18.0% in 2005 from 15.8% in 2004. Assets in the Medical Segment declined $67.0 million or 6%, primarily due to the impact of currency. Comparison of 2004 and 2003 Medical Segment revenues increased 40% in 2004 to $736.4 million from $525.8 million in 2003. This increase was due to increases of 24% from acquisitions, 6% from core growth, 5% from currency, 3% from the impact of eliminating the one-month reporting lag for certain of our foreign operations and 2% from the consolidation of variable interest entities. In disposable medical products, 59% of the growth came from the HudsonRCI acquisition with currency and core improvement providing a majority of the remaining increase. In surgical instruments and medical devices, the cardiothoracic acquisition in the third quarter of 2003 accounted for over two-thirds of the year-over-year revenue improvement.25
25
Medical Segment operating profit increased 38% in 2004 to $116.7 million from $84.7 million in 2003. This increase was driven largely by acquisitions and core volume gains in both the disposable medical products and surgical instruments and medical devices product lines. Operating profit as a percent of revenues declined to 15.8% in 2004 from 16.1% in 2003. Assets in the Medical Segment increased $538.9 million or 95% primarily due to the HudsonRCI acquisition. Aerospace Products and services in the Aerospace Segment, many of which are proprietary, require a high degree of engineering sophistication and are often custom-designed. Economic influences on these products and services relate primarily to spending patterns in the worldwide aerospace industry and to demand for power generation. Comparison of 2005 and 2004 Aerospace Segment revenues increased 9% in 2005 to $493.8 million from $453.2 million in 2004. Strong core growth in repair products and services and in sales of both narrow-body cargo loading systems and wide-body cargo system conversions, along with an increase due to a small acquisition in 2005, was partially offset by the impact of eliminating the one-month reporting lag in 2004 for certain of our foreign operations and by the phase out of industrial gas turbine aftermarket services. Aerospace Segment operating profit increased to a profit of $33.4 million in 2005 from a loss of $10.5 million in 2004, an improvement of $43.9 million. Higher volume and improvements in precision-machined components and the cargo systems businesses contributed to the increase as did a reduction in losses resulting from the exit of the industrial gas turbine aftermarket services. Operating profit (loss) as a percent of revenues was 6.8% in 2005 versus (2.3)% in 2004. Assets in the Aerospace Segment declined $106.0 million or 27%, due primarily to the impact of the sale of the Sermatech International business. Comparison of 2004 and 2003 Aerospace Segment revenues increased 2% in 2004 to $453.2 million from $445.6 million in 2003. This increase was due to increases of 1% from core growth, 1% from currency and 1% from the impact of eliminating the one-month reporting lag for certain of our foreign operations, offset, in part, by a 1% decrease from dispositions. Core growth was the result of double-digit growth in repair products and services and precision-machined components, which more than compensated for declines in industrial gas turbine, or IGT and cargo-handling systems. Core revenue growth was in part due to increased sales of lower margin offerings. Aerospace Segment operating profit declined 279% in 2004 to a loss of $10.5 million from a profit of $5.9 million in 2003. Operating profit declined due primarily to one-time charges in IGT related to our restructuring and divestiture program, pricing pressures from the aerospace OEMs and aftermarket and higher costs in manufactured components. Operating profit (loss) as a percent of revenues was (2.3)% in 2004 versus 1.3% in 2003. Assets in the Aerospace Segment declined $69.9 million or 15% due substantially to the phase-out of the IGT business.26
26
Liquidity and Capital Resources Operating activities provided net cash of approximately $335.9 million during 2005. Changes in our operating assets and liabilities during 2005 resulted in a net cash inflow of $69.7 million. The most significant change was a decrease in accounts receivable, which was primarily due to improved cash collection practices including the sale of certain receivables under a non-recourse securitization program. Our financing activities during 2005 consisted primarily of a reduction in long-term borrowings of $270.3 million and proceeds from long-term borrowings of $109.2 million, as a result of improved operating cash flow, the repatriation of foreign earnings, proceeds from the disposition of businesses and lower capital spending. During 2005, we also made payments to minority interest shareholders of $63.0 million and purchases of treasury stock of $46.5 million. Our investing activities during 2005 consisted primarily of proceeds from the sale of businesses and assets of $142.9 million. During 2005, we also had capital expenditures of $69.9 million. We had net cash used in discontinued operations of $2.7 million in 2005. See the “Interest Rate Risk” section of Item 7A on page 30 for additional information regarding interest rates and borrowings. Operating activities provided net cash of approximately $254.8 million during 2004. Changes in our operating assets and liabilities during 2004 resulted in a net cash inflow of $25.9 million. The most significant changes were an increase in accounts payable and accrued expenses and a decrease in inventories, offset, in part, by an increase in accounts receivable and a decrease in income taxes payable. The increase in accounts payable and accrued expenses was due primarily to increased accruals associated with the restructuring and divestiture program. The decrease in inventories was the result of our focus on improved working capital management. The increase in accounts receivable was largely a result of increased business levels and the HudsonRCI acquisition. The decrease in income taxes payable was a result of tax deductions associated with the restructuring and divestiture program, for which the cash benefits were received in 2005. Our financing activities during 2004 consisted primarily of the receipt of $511.6 million in gross proceeds from long-term borrowings, primarily for the acquisition of HudsonRCI. This amount is offset by a decrease in notes payable and current borrowings of $137.8 million and a reduction in long-term borrowings of $77.9 million, driven by improved operating cash flow, proceeds from the disposition of businesses and lower year-over-year capital spending. Our investing activities during 2004 consisted primarily of payments for businesses acquired of $458.5 million. We had net cash provided by discontinued operations of $7.4 million in 2004. Operating activities provided net cash of approximately $225.7 million during 2003. Changes in our operating assets and liabilities during 2003 resulted in a net cash outflow of $6.3 million. The most significant change was an increase in accounts receivable, offset, in part, by an increase in income taxes payable. Accounts receivable growth was in line with volume improvement as accounts receivable as a percentage of fourth quarter revenues remained flat. Our financing activities during 2003 consisted primarily of a reduction in long-term borrowings of $37.5 million, offset, in part, by an increase in notes payable and current borrowings of $35.1 million. During 2003, we also paid $30.9 million in dividends. Our investing activities during 2003 consisted primarily of payments for businesses acquired of $85.2 million and capital expenditures of $76.3 million. We had net cash used in discontinued operations of $21.1 million in 2003. We use an accounts receivable securitization program to gain access to enhanced credit markets and reduce financing costs. As currently structured, we sell certain trade receivables on a non-recourse basis to a consolidated special purpose entity, which in turn sells an interest in those receivables to a commercial paper conduit. The conduit issues notes secured by that interest to third party investors. The assets of the special purpose entity are not available to satisfy our obligations. During the first quarter of 2005, we amended the securitization program agreement. In accordance with the provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” transfers of assets under the program now qualify as sales of receivables and accordingly, $40.1 million and $0 of accounts receivable and the related amounts previously recorded in notes payable were removed from the consolidated balance sheet as of December 25, 2005 and December 26, 2004, respectively.27
27
On July 25, 2005, our Board of Directors authorized the repurchase of up to $140 million of outstanding Teleflex common stock over twelve months ending July 2006. Under the approved plan, we repurchased 0.7 million shares on the open market for an aggregate purchase price of $46.5 million during 2005. During the fourth quarter of 2005, management completed its analysis of the impact of the AJCA and finalized and executed a foreign earnings repatriation plan. Under this plan, we repatriated $304 million of dividends during November and December 2005. The valuation allowance for deferred tax assets of $32.6 million and $31.7 million at December 25, 2005 and December 26, 2004, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit carryforwards in various jurisdictions. We believe that we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax asset. The valuation allowance was calculated in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes,” which requires that a valuation allowance be established and maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In addition to the cash generated from operations, we have approximately $383 million in committed and $120 million in uncommitted unused lines of credit available. The availability of the lines of credit is dependent upon us maintaining our financial condition including our continued compliance with bank covenants. Various senior and term note agreements provide for the maintenance of certain financial ratios and limit the repurchase of our stock and payment of cash dividends. Under the most restrictive of these provisions, $213 million of retained earnings was available for dividends and stock repurchases at December 25, 2005. On February 22, 2006, the Board of Directors declared a quarterly dividend of $0.25 per share on our common stock, which was paid on March 15, 2006 to holders of record on March 6, 2006. As of March 6, 2006, we had approximately 1,005 holders of record of our common stock. Fixed rate borrowings comprised 68% of total borrowings at December 25, 2005. Approximately 22% of our total borrowings of $631 million are denominated in currencies other than the U.S. dollar, principally the euro, which we believe provides a natural hedge against fluctuations in the value of assets outside the United States. The following table provides our net debt to total capital ratio:
28
We believe that our cash flow from operations and our ability to access additional funds through credit facilities will enable us to fund our operating requirements, capital expenditures and additional acquisition opportunities. Contractual obligations at December 25, 2005 are as follows:
29
Interest Rate Risk We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. Interest rate swaps are used to manage a portion of our interest rate risk. The table below is an analysis of the amortization and related interest rates by year of maturity for our fixed and variable rate debt obligations. Variable interest rates shown below are weighted average rates of the debt portfolio. For the swaps, notional amounts and related interest rates are shown by year of maturity. The fair value of the interest rate swaps as of December 25, 2005 was $1.5 million.
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE" -->
31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS" -->
32
SIGNATURES" -->
33
TELEFLEX INCORPORATEDINDEX TO CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING" -->
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" -->
F-3
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPPhiladelphia, PennsylvaniaMarch 20, 2006F-4
F-4
TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME" -->
F-5
TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS" -->
F-6
TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS" -->
F-7
TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY" -->
F-8
TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except per share)Note 1-- Summary of significant accounting policies" -->
F-9
TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)doubtful accounts was $10,090 and $11,296 as of December 25, 2005 and December 26, 2004, respectively. Inventories: Inventories are valued at the lower of average cost or market. Elements of cost in inventory include raw materials, direct labor, and manufacturing overhead. In estimating market value, the Company evaluates inventory for excess and obsolete quantities based on estimated usage and sales. Property, plant and equipment: Property, plant and equipment are stated at cost, net of accumulated depreciation. Costs incurred to develop internal-use computer software during the application development stage generally are capitalized. Costs of enhancements to internal-use computer software are capitalized, provided that these enhancements result in additional functionality. Other additions and those improvements which increase the capacity or lengthen the useful lives of the assets are also capitalized. With minor exceptions, straight-line composite lives for depreciation of property, plant and equipment are as follows: buildings — 30 years; machinery and equipment — 8 to 10 years. Repairs and maintenance costs are expensed as incurred. Goodwill and other intangible assets: Goodwill and other intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually. Impairment losses, if any, are recorded as part of income from operations. Impairment tests are performed annually, or more frequently if there is a triggering event. In connection with the Company’s restructuring and divestiture program, the Company determined in the fourth quarter of 2004 that a portion of its goodwill was impaired and recorded a charge of $18.6 million, $14.1 million of which was included in restructuring costs and $4.5 million of which was included in discontinued operations. The Company performed an annual impairment test of its remaining recorded goodwill and indefinite-lived intangible assets in the fourth quarters of 2005 and 2004 and found no instances of impairment. Intangible assets consisting of intellectual property, customer lists and distribution rights are being amortized over their estimated useful lives, which range from 4 to 30 years, with a weighted average amortization period of 12 years. The Company continually evaluates the reasonableness of the useful lives of these assets. Long-lived assets: The ability to realize long-lived assets is evaluated periodically as events or circumstances indicate a possible inability to recover their carrying amount. Such evaluation is based on various analyses, including undiscounted cash flow and profitability projections that incorporate, as applicable, the impact on the existing business. The analyses necessarily involve significant management judgment. Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Product warranty liability: Product warranty liability arises out of the need to repair or replace product without charge to the customer. The Company warrants such products from manufacturing defect. The Company estimates its warranty liability based on historical trends of units sold, the status of existing claims, recall programs and communication with customers. Foreign currency translation: Assets and liabilities of non-domestic subsidiaries denominated in local currencies are translated into U.S. dollars at the rates of exchange at the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The resultant translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity.F-10
F-10
TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Derivative financial instruments: The Company uses derivative financial instruments primarily for purposes of hedging exposures to fluctuations in interest rates and foreign currency exchange rates. All instruments are entered into for other than trading purposes. All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income (loss), based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in other comprehensive income (loss) are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion of all hedges is recognized in current period earnings. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, gains or losses on the derivative are recorded in current period earnings. Stock-based compensation: Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation expense for stock options and restricted stock issued to employees is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. The following table illustrates the pro forma net income and earnings per share for 2005, 2004 and 2003 as if compensation expense for stock options issued to employees had been determined consistent with SFAS No. 123:
F-11
TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Provision has been made for income taxes on unremitted earnings of subsidiaries and affiliates, except for subsidiaries in which earnings are deemed to be permanently invested. Pensions and other postretirement benefits: The Company provides a range of benefits to eligible employees and retired employees, including pensions and postretirement healthcare. The Company records annual amounts relating to these plans based on calculations which include various actuarial assumptions such as discount rates, expected rates of return on plan assets, compensation increases, turnover rates and healthcare cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate. As required, the effect of the modifications is generally amortized over future periods. Restructuring costs: Restructuring costs, which include termination benefits, contract termination costs, asset impairments and other restructuring costs are recorded at estimated fair value. Key assumptions in calculating the restructuring costs include the terms that may be negotiated to exit certain contractual obligations, the realizable value of certain assets associated with discontinued product lines and the timing of employees leaving the company. Revenue recognition: The Company recognizes revenues from product sales or services provided when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured. This generally occurs when products are shipped or services rendered upon customers’ acceptance. Revenues from product sales, net of estimated returns and other allowances based on historical experience and current trends, are recognized upon shipment of products to customers. Revenues from services provided are recognized as the services are rendered and comprised less than 10% of total revenues for all periods presented. Revenues from longer term construction contracts are accounted for based on the percentage of completion method and comprised less than 2% of total revenues for all periods presented. Revisions and reclassifications: The Company has revised its consolidated statements of cash flows to attribute cash flows from discontinued operations to each of operating, financing and investing activities. Previously, the Company reported cash flows from discontinued operations as one line item. The Company has also revised its consolidated statements of cash flows to attribute payments to minority interest shareholders as cash flows from financing activities of continuing operations. Previously, the Company reported these cash flows as part of cash flows from operating activities of continuing operations. In addition, certain reclassifications have been made to the prior years’ consolidated financial statements to conform to current year presentation. Certain financial information is presented on a rounded basis, which may cause minor differences.Note 2—New accounting standards Medicare prescription drug costs: On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company sponsors medical programs for certain of its U.S. retirees. In April 2004, the FASB issued Staff Position (“FSP”) No. FAS 106-2 to address the accounting and disclosure requirements related to the Act. FSP No. FAS 106-2 is effective forF-12
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)interim or annual periods beginning after June 15, 2004. The Company adopted this provision during 2004 and it did not have a material impact on the Company’s financial position, results of operations or cash flows. On January 21, 2005, the Centers for Medicare and Medicaid Services (“CMS”) released the final regulations (the “Regulations”) implementing the Act. Generally, the Regulations are expected to cause more retiree health programs (or subgroups within such programs) to meet the Act’s actuarial equivalence standard (or to result in more years of expected actuarial equivalence) than had originally been expected when the Act was passed. The Regulations did not have a material impact on the Company’s financial position, results of operations or cash flows. American Jobs Creation Act: On October 22, 2004 the American Jobs Creation Act (“the AJCA”) was signed into law. The AJCA includes a deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The deduction is subject to a number of limitations and complexities, and during the past nine months, the Company has been analyzing the previous guidance provided by the Treasury Department and the potential impact of applying the repatriation provision to unremitted foreign earnings held by its various controlled foreign corporations. During the three months ended December 25, 2005, management completed its analysis of the impact of the AJCA and finalized and executed a repatriation plan. Under this plan, the Company repatriated $304 million of dividends during November and December 2005. Accordingly, the Company recorded a tax expense of approximately $8.3 million during the three months ended December 25, 2005 as a result of this repatriation. This tax expense was offset by a tax benefit of approximately $14.1 million related to excess foreign tax credits generated in connection with this repatriation. Management obtained the requisite corporate officer and Board of Directors approvals of the domestic reinvestment plan within the timeframe specified. See Note 11 for additional information regarding income taxes. Inventory costs: In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” which clarifies the types of costs that should be expensed rather than capitalized as inventory. This statement also clarifies the circumstances under which fixed overhead costs associated with operating facilities involved in inventory processing should be capitalized. The provisions of SFAS No. 151 are effective for fiscal years beginning after June 15, 2005. The Company will adopt this standard on December 26, 2005 and does not expect the provisions of this statement to have a material impact on the Company’s financial position, results of operations or cash flows. Stock-based compensation: In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which establishes accounting standards for transactions in which an entity receives employee services in exchange for (a) equity instruments of the entity or (b) liabilities that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of equity instruments. SFAS No. 123(R) requires an entity to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees in the statement of income. The statement also requires that such transactions be accounted for using the fair-value-based method, thereby eliminating use of the intrinsic value method of accounting in APB No. 25, “Accounting for Stock Issued to Employees,” which was permitted under Statement 123, as originally issued. SFAS No. 123(R) is effective for fiscal years beginning after June 15, 2005. The Company intends to adopt this statement on December 26, 2005 using modified prospective application and previously reported operating results will remain unchanged. The Company expects the provisions of this statement to have a material impact on the Company’s results of operations and the Company believes that the pro forma disclosures in Note 1 provide a preliminary short-term indicator of the level of expense that will be recognized in accordance with SFAS No. 123(R). However, the total expense recorded in future periods will depend on several factors, including future grants, the number of share-based awards that vest and the fair value of those vested awards.F-13
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Exchanges of nonmonetary assets: In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This statement amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company adopted the provisions of this statement in the third quarter of 2005 and it did not have a material impact on the Company’s financial position, results of operations or cash flows. Conditional asset retirement obligations: In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies that an entity must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. The provisions of FIN No. 47 are effective for fiscal years ending after December 15, 2005. The Company adopted the provisions of this interpretation in the fourth quarter of 2005 and it did not have a material impact on the Company’s financial position, results of operations or cash flows. Accounting changes and error corrections: In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and changes the requirements of the accounting for and reporting of a change in accounting principle. SFAS No. 154 also provides guidance on the accounting for and reporting of error corrections. The provisions of this statement are applicable for accounting changes and error corrections made in fiscal years beginning after December 15, 2005. The Company will adopt this standard on December 26, 2005 and does not expect the provisions of this statement to have a material impact on the Company’s financial position, results of operations or cash flows. Amortization period for leasehold improvements: In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-6, “Determining the Amortization Period for Leasehold Improvements,” which requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. EITF No. 05-6 is effective for periods beginning after June 29, 2005. The Company adopted the provisions of this consensus in the fourth quarter of 2005 and it did not have a material impact on the Company’s financial position, results of operations or cash flows.Note 3—Acquisitions 2005 Acquisition In 2005, the Company acquired a small repair products and services business in the Aerospace Segment for $8,000. Based on the preliminary purchase price allocation, no goodwill was recognized in the transaction. Acquisition of Hudson Respiratory Care, Inc. On July 6, 2004, the Company completed the acquisition of all of the issued and outstanding capital stock of Hudson Respiratory Care Inc. (“HudsonRCI”), a provider of disposable medical products for respira-F-14
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)tory care and anesthesia, for $457,499. The results for HudsonRCI are included in the Company’s Medical Segment. The acquisition has been accounted for using the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” The following table presents the allocation of purchase price for the HudsonRCI acquisition based on estimated fair values:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In connection with this acquisition, the Company formulated a plan related to the future integration of the acquired entity. The Company finalized the integration plan during the second quarter of 2005 and the integration activities are ongoing as of December 25, 2005. The Company has accrued estimates for certain costs, related primarily to personnel reductions and facility closings and the termination of certain distribution agreements at the date of acquisition, in accordance with EITF Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” Set forth below is a reconciliation of the Company’s future integration cost accrual:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) For 2005 and 2004, the charges, including changes in estimates, associated with the restructuring and divestiture program by segment that are included in restructuring costs were as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Set forth below is a reconciliation of the Company’s accrued liability associated with the restructuring and divestiture program. At December 25, 2005, the accrued liability was entirely due within twelve months:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Note 7—Goodwill and other intangible assets Changes in the carrying amount of goodwill, by operating segment, for 2005 are as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Note 8—Borrowings Long-term borrowings at year end consisted of the following:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table provides financial instruments activity included as part of accumulated other comprehensive income (loss):
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Options exercisable and shares available for future grant at year end are as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Note 11—Income taxes The following table summarizes the components of the provision for income taxes from continuing operations:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Significant components of the deferred tax assets and liabilities at year end were as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Note 12—Pension and other postretirement benefits The Company has a number of defined benefit pension and postretirement plans covering eligible U.S. andnon-U.S. employees. The defined benefit pension plans are noncontributory. The benefits under these plans are based primarily on years of service and employees’ pay near retirement. The Company’s funding policy for U.S. plans is to contribute annually, at a minimum, amounts required by applicable laws and regulations. Obligations undernon-U.S. plans are systematically provided for by depositing funds with trustees or by book reserves. The discount rate is established from the 15+ year Merrill Lynch AAA/ AA Bond Index as published by Bloomberg.com. The yield from this index is 5.73% as of December 25, 2005. To satisfy the Company that this index is representative of the obligations of the plan, the Company also compared the projection of expected benefit payments based on the assumptions used for the actuarial valuation to a curve published monthly by Citigroup. Under this analysis, the expected benefit payments are discounted by each corresponding discount rate on the yield curve. Once the present value of the string of benefit payments is established, the Company solves for the single spot rate to apply to all obligations of the plan that will exactly match the previously determined present value. By comparing the results of the yield curve examination to the Merrill Lynch index yield referenced above, the Company is satisfied that 5.75% is a reasonable assumption for the discount rate as of December 25, 2005. The yield curve which the Company considered is the Citigroup Pension Discount Curve, which is constructed beginning with a U.S. Treasury par curve that reflects the entire Treasury and Separate Trading of Registered Interest and Principal Securities (“STRIPS”) market. From the Treasury curve, Citibank produces a AA corporate par curve by adding option-adjusted spreads that are drawn from the AA corporate sector of the Citigroup Broad Investment—Grade Bond Index. Finally, from the AA corporate par curve, Citigroup derives the spot rates that constitute the Pension Discount Curve. For payments beyond 30 years the Company extends the curve assuming that the discount rate derived in year 30 is extended to the end of the plan’s payment expectations. This curve provides a conservative result and is only used to determine the reasonableness of the Company’s assumption. The parent Company and certain subsidiaries provide medical, dental and life insurance benefits to pensioners and survivors. The associated plans are unfunded and approved claims are paid from Company funds. Net benefit cost of pension and postretirement benefit plans consisted of the following:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The weighted average assumptions for U.S. and foreign plans used in determining net benefit cost were as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company’s contributions to U.S. and foreign pension plans during 2006 are expected to be in the range of $7 million to $9 million. Contributions to postretirement healthcare plans during 2006 are expected to be approximately $2 million. Based upon the Company’s evaluation of its cash and debt positions during 2006, the Company may elect to contribute up to approximately $59 million to its U.S. defined benefit plans, which approximates the maximum allowable under current tax laws. The Company’s expected benefit payments for U.S. and foreign plans for each of the five succeeding years and the aggregate of the five years thereafter is as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Future minimum lease payments (including residual value guarantee amounts) under noncancelable operating leases are as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)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 the Company’s business, financial condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred. In February 2004, a jury verdict of $34,800 was rendered against one of the Company’s subsidiaries in a trademark infringement action. In February 2005, the trial judge entered an order rejecting the jury award in its entirety. Both parties have filed notice to appeal on various grounds. While the Company cannot predict the outcome of the appeals, it will continue to vigorously contest this litigation. No accrual has been recorded in the Company’s consolidated financial statements. Other: The Company has various purchase commitments for materials, supplies and items of permanent investment incident to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market.Note 14—Business segments and other information The Company has determined that its reportable segments are Commercial, Medical and Aerospace. The Commercial Segment businesses principally design, manufacture and distribute engineered products in the technical areas of driver control, motion control, power and vehicle management and fluid management. The Company’s products are used by a wide range of markets including the passenger car and light truck, marine, recreational, mobile power equipment, military, agricultural and construction vehicle, truck and bus and various other industrial equipment sectors. The Medical Segment businesses develop, manufacture and distribute disposable medical products, surgical instruments and medical devices, and specialty devices that support healthcare providers and medical equipment manufacturers. The Company’s products are largely sold and distributed to hospitals and healthcare providers in a range of clinical settings. The Aerospace Segment businesses develop and provide repair products and services for flight and ground-based turbine engines, manufacture and distribute precision-machined components and design, manufacture and market cargo-handling systems to commercial aviation, military, power generation and industrial markets worldwide.F-30
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Information about continuing operations by business segment is as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(2) Identifiable corporate assets include cash, investments in unconsolidated entities, property, plant and equipment and deferred tax assets primarily related to net operating losses and pension and retiree medical plans. Information about continuing operations in different geographic areas is as follows:
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TELEFLEX INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Concluded) Revenues of discontinued operations were $112,515, $227,967 and $221,539 for 2005, 2004 and 2003, respectively. Operating income (loss) from discontinued operations was $2,304, $(68,262) and $(5,771) for 2005, 2004 and 2003, respectively. As part of the Company’s previously announced restructuring and divestiture program, the Company determined that assets totaling $32,789 met the criteria for held for sale classification during 2005. The assets are comprised primarily of land and buildings that are no longer being used in the Company’s operations. The Company determined that the carrying value of each asset held for sale did not exceed the estimated fair value of the asset less costs to sell and therefore did not adjust the carrying value of the asset in 2005. In October 2005, the Company completed the sale of a product line in its Medical Segment. The Company received gross proceeds of $10,265 and recorded a pre-tax gain on the sale of $8,989. Also during 2005, the Company sold assets, including assets held for sale totaling $12,942, and recognized an aggregate net gain on these sales of $5,234. The Company is actively marketing its remaining assets held for sale. During 2004, the Company sold six non-strategic businesses resulting in a net pre-tax gain of $2,733. No individual transaction resulted in a material gain or loss. During 2003, the Company sold an investment resulting in a pre-tax gain of $3,068. Assets and liabilities held for sale are comprised of the following:
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QUARTERLY DATA (UNAUDITED)" -->
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TELEFLEX INCORPORATED" -->
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INDEX TO EXHIBITS The following exhibits are filed as part of, or incorporated by referenced into, this report: