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Executives

Jake Elguicze – Treasurer and VP, IR

Benson Smith – Chairman, President and CEO

Thomas Powell – SVP and CFO

Analysts

Lawrence Keusch (Constantine) – Raymond James

David Lewis (John) – Morgan Stanley

Rich Newitter – Leerink Swann

Anthony Petrone – Jefferies

Jonathan Palmer - CLSA

James Sidoti – Sidoti & Company

Teleflex, Inc. (TFX) Q2 2012 Earnings Call July 31, 2012 8:00 AM ET

Operator

Good day Ladies and Gentlemen, and welcome to the second quarter 2012 Teleflex, Incorporated earnings conference call. (Operator Instructions).

And now I have the pleasure in turning the conference over to Jake Elguicze, Treasurer and Vice President of Investor Relations. Please proceed, Sir.

Jake Elguicze

Thank you, Operator, and good morning everyone. And welcome to the second quarter 2012 Teleflex, Incorporated earnings conference call.

The press release and slides to accompany this call are available on our website at www.teleflex.com.

As a reminder, this call will be available on our website and a replay will be available by dialing 888-286-8010, or for international calls, 617-801-6888, pass code 46362185.

Participating on today's call are Benson Smith, Chairman, President, and Chief Executive Officer, and Thomas Powell, Senior Vice President and Chief Financial Officer. Benson and Tom will make brief prepared remarks and then we'll open up the call to questions.

Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined on slide four. We wish to caution you that such statements are in fact forward-looking in nature. And are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results to differ materially include but are not limited to factors made in our press release today as well as our filing with the SEC, including our form 10K, which can be accessed on our website.

In addition, I would like to point out that on July 18th, 2012, the company announced that it had entered into a definitive agreement to sell its OEM with Pedic's Business. As such, the results for this business are included in discontinued operations for all periods presented.

With that, I'd like to now turn the call over to Benson.

Benson Smith

Thanks, Jake, and good morning everyone.

On today's call, I'll begin with an overview of the results for the second quarter including some strategic highlights. Then Tom will provide you with a review of our second quarter financial performance, a review of our product line at geographic revenue mix, as well our outlook for 2012. He will then turn the call back to me for some closing remarks, so let's get started.

Building upon the solid performance from the first quarter of the year, the second quarter of 2012 was another strong quarter for Teleflex with revenues reaching $383.3 million. Due to the impact of foreign currency fluctuations on an as-reported basis, sales increased .6%. However on a constant currency basis, sales increased 4.7% as compared to the prior year period. Once again, the company achieved constant currency sales growth in all of its' geographic regions as well as all but one of its' strategic business unit franchises.

Comparing first quarter to second quarter, it might appear that our constant currency growth is slowing down on a sequential basis. However, because of the difference in days compared to last year and other factors, our quarterly comparisons this year are somewhat lopsided. In context, let me say that both our first quarter and our second quarter constant currency revenue attainment are ahead of our initial expectations.

Turning to gross and adjusted operating margins, they were at 48.1% and 17% respectively representing a year-over-year improvement of 50 base points on the gross margin line. And 150 basis points at the operating margin line.

And finally, adjusted earnings per share for the second quarter of 2012 was $1.23, an increase of 34% over the prior year period.

So now let's move to some of the strategic highlights for the quarter. I know that many of you are interested in getting an update regarding the price increases that were put in place around the mid-year mark of 2011. During the second quarter of 2012, the average selling prices of our products continued to trend in the right direction. Overall, pricing contributed 132 basis points towards our sales growth.

These contributions continued to exceed our initial full year expectations with much of the favorability being driven by our ability to continue to increase prices in Europe faster than we had initially expected. For the second quarter in a row, European pricing has been positive, this quarter, generating 28 basis points of growth.

In addition to Europe, we also had positive pricing in the Asia-Pacific and Latin America markets of 252 basis points. As well as positive pricing in the North American market of 140 basis points.

I can appreciate that some of you are wondering why our pricing strategy is working and wondering if it will continue to work. The reason quite simply is because of the hard work our teams did in identifying those particular areas where we could take price improvement even in a difficult market environment. I am pleased to tell you that one of the significant cultural improvements we have made at Teleflex is a rigorous pricing discipline, which in and of itself will benefit us in the future in good markets and in tough markets.

Change R&D, we continue to make investments in our future and see those investments translate into revenue growth. This past quarter, spending on R&D initiatives was up 10% versus the second quarter of 2011 reaching 3.6% of revenue, while sales of newly introduced products contributed 94 basis points of top line growth.

One franchise in particular that continues to benefit from the launching of new products is our vascular business. During the second quarter, we saw a nice increase in sales of our recently introduced ArrowADVANTAGE5 and ArrowEVOLUTION PICC products. And I'm pleased to tell you that another 12 accounts have chosen our VasoNova VPS device to use as a targeting system. Seven during the second quarter and another five in the month of July alone.

In addition to capital being put towards internal R&D investment during the past quarter, we closed on four acquisitions that will significantly augment our R&D pipeline in the future.

The first acquisition I would like to talk to you about this morning is Semprus Biosciences. Located in Cambridge, Massachusetts, Semprus is a biomedical company that was spun out of MIT. This transaction brings to Teleflex an innovative and patented platform technology Semprus sustained that will serve as the basis for many of our next generation medical devices. This technology is designed to provide the benefits of reducing complications such as thrombosis and microbial adhesion over long durations. And while the initial focus for this technology will be in vascular device applications, we see this technology being applied across a range of our existing products including dialysis, Foley catheters, and into tracheal tubes.

The next acquisition I would like to tell you about is Hotspur Technologies. Hotspur based in Mountain View, California is a leading developer of innovative catheter based technologies aimed at restoring blood flow for patients with obstructed vessels. With this acquisition, Teleflex broadens and strengthens its' product portfolio that addresses the estimated $1 billion market opportunity for dialysis access and peripheral PTA balloons worldwide. We believe the Hotspur multi-function catheters are the most innovative in the PTA balloon market and provide clear advantages over current treatment options.

Continuing on, during the quarter, we also closed on the acquisition of the EFX family of laparoscopic fascial closer system products. This product portfolio includes both FDA cleared and pipeline products designed for the safe and simple closure of abdominal trocar defects through which access ports and instruments were used during laparoscopic surgeries. More than 750 clinical cases have been performed with the device in the United States. And currently, this product is being prepared for CE Mark review. When we acquired the EFX product line, we were obviously impressed with this design. But it's always great to get some additional customer confirmation. And we were pleased to get a notification from the Society of Laparoscopic Surgeons that the wet EFS endo-fascial closure system will be recognized at the opening session of their annual meeting as one of the 2012 innovations of the year.

And finally on the acquisition front, we acquired the EZ-Blocker single use catheter product line. This brings to Teleflex an innovative technology used for lung isolation and one-lung ventilation procedures. It currently has a CE Mark approval in Europe and a 510(k) application has been submitted to the FDA and it's pending clearance.

This product line is designed to provide benefits and overcome the significant drawbacks of currently used products for lung isolation procedures. Namely, it's used in combination with standard endotracheal tube and its' easy and intuitive position. This product line will strengthen our anesthesia and respiratory franchise. And although it is very early on, the integration of all these acquisitions are going very well.

In addition to acquiring some innovative technologies that will position Teleflex for future growth, during the second quarter, we reached a definitive agreement to sell our OEM orthopedics' business for $45.2 million. This transaction is expected to close during the third quarter of the year. And although it comprised approximately $.13 of earnings on an annual basis, its' revenue growth rates and margin profile were not consistent with our company's longer term goals and objectives.

I would like to take a moment to thank all of the employees in this business for all their hard work and dedication over the years, and wish them well in the future.

In addition to changing the future margin profile of the company through recently announced M&A, I am pleased to tell you that we're also taking steps to reduce our operational footprint. Currently, we occupy and operate three U.S. based distribution centers. During the course of next year, these three distribution centers will be consolidated into one centralized distribution center. This will lead to improved operating efficiencies, improve service to our customers, and will help expand our future gross and operating margins.

And before I turn the call over to Tom, let's briefly review our accomplishments this past quarter from a GPO and IDN perspective.

During the second quarter, Teleflex was awarded seven GPO contracts. Of those GPO awards, three were brand new, including a thrombectomy award with Health Trust as well as a vascular and anesthesia award with Amerinet.

And although you haven't heard me talk much about integrated delivery networks in the past, you will hear me speak of them more in the future. This past quarter, Teleflex was awarded 11 IDN contracts, five of which were not previously on. On a year-to-day global basis, we've been awarded 24 GPO and IDN contracts. Cumulatively, all of these contracts will help position Teleflex to achieve sustainable and profitable growth in the future.

With that, I'll now turn the call over to Tom and he can walk you through our most recent quarterly financial performance in more detail. Tom.

Thomas Powell

Thanks, Benson, and good morning everyone.

Revenues for the second quarter were $383.3 million, up .6% on an as reported basis. When adjusting for currency fluctuations, revenue grew 4.7%.

In looking ahead, Teleflex constant revenue growth was achieved 132 basis points came from improved pricing, while 94 basis points came from new product introductions. And approximately 240 basis points came from increased volume.

Turning to gross profit in margins, they were $184.4 million or 48.1% in the second quarter of 2012. This compares to $181.4 million or 47.6% in the prior year quarter. Gross profit in margins were up year-over-year due to the impact of improved pricing and increased volumes, which occurred across all geographic areas. As long as from lower manufacturing costs in North America and Europe.

Our ability to further expand gross profits was somewhat limited by foreign currency translation headwinds, which had a negative impact of approximately $7.7 million in the quarter.

In addition, during the second quarter of 2012, we wrote off approximately $2.8 million of excess and damaged inventory within our Singapore distribution center. We attribute the write off to first year startup learnings, and do not expect a similar write off to occur in the second half of 2012.

Moving to adjusted operating expenses, selling, general, and administrative expenses were $105.3 million during the quarter, down from $109.8 million last year. The current year amount is adjusted to exclude approximately $600,000 with a cost associated with the acquisitions we announced this quarter. The decrease in SG&A for the quarter was largely due to foreign currency fluctuations and cost that were incurred during the second quarter of 2011 that did not repeat this year.

The referenced second quarter of 2011 costs include $1 million increase in the valuation allowance against three government bonds that the company held at the time. And a $1.7 million increase in litigation reserves.

Turning to R&D, in the quarter, research and development spending was $13.7 million, up from $12.5 million last year. A higher level of R&D expense principally reflects increased investments related to vascular access products in North America and new technologies obtained in the second quarter of 2012 through acquisitions.

For the second quarter, adjusted operating margins improved 150 basis points from the prior year quarter to 17%. The improvement in adjusted operating margins was a result of the 50 basis point improvement in gross margin combined with a 2.7% reduction in adjusted operating expense.

Moving to interest, second quarter net interest expense was $17.7 million, an increase of approximately $2.2 million. The increase in interest expense reflects higher average outstanding debt of approximately $68 million currently offset by lower average interest rates.

Turning to taxes, the GAAP tax amount this quarter was income of approximately $300,000. The tax rate for the quarter was substantially influenced by benefits related to two items. The first was the resolution of by-year tax audits in Germany and Italy that resulted in a discreet net tax benefit of approximately $7.7 million. This is treat net benefit as treated consistent with prior practice as a reduction to our adjusted earnings results.

The second item that favorably impacted our tax rate this quarter was a change in the company's estimate of tax expense associated with potential repatriation of non-currently reinvested foreign earnings. This item attributed approximately $.12 to earnings per share.

And finally, adjusted earnings per share for the second quarter were $1.23, an increase of approximately 34% versus the prior year.

Now, let's move to a more detailed review of our constant currency product in geographic revenue results. Critical care revenue was $254.1 million, up 4.4%. During the quarter, anesthesia product sales increased 7.8% while urology and vascular access sales increased 6.9% and 3.8% respectively. Respiratory sales on the other hand were down .4%.

Moving to surgical, revenue was $72.5 million, up 3.8%. Growth in surgical product sales was a result of increased sales of ligation and closure device products.

Turning to cardiac, revenue was $20.5 million, down 2.3%. Decline in revenue during the second quarter occurred in both the capital equipment portion of the business as well as the single use disposable catheter side.

And lastly, OEM revenue for the quarter was $36 million, up 13.6%. The referenced OEM figures exclude any orthopedic revenues for all periods presented. That business has now been classified as discontinued operations in anticipation of closing the sale later this year.

Now I'll walk you through our top line performance from a geographic perspective. Revenue in North America was $160.3 million, up 2.7%. Sales growth was a result of improved volumes, the introduction of new products to the market, and improved pricing.

In Europe, sales were $126.9 million, up 2.3% with revenue increases coming from volume growth, new products, and modestly improving pricing.

The Asia-Pacific and Latin America markets, sales were $60.1 million, up 11.1%. In these markets, increased revenues were principally the result of higher volumes and improved pricing.

And before I turn the call over to Benson for some closing remarks, I'd like to provide you with an update regarding our full year 2012 financial outlook. Despite operating within a very difficult macro environment, Teleflex has performed quite well for the first six months of the year. And as a result, we are maintaining our previously provided 2012 outlook for constant currency revenue growth and adjusted earnings per share.

All of our geographic regions as well as most of our product lines have performed extremely well on a constant currency revenue basis for the first six months of the year. And as a result although we are not adjusting our full year 2012 constant currency revenue growth range, we believe we'll be closer to achieving the higher end of the 4% to 6% range previously provided.

Given where exchange rates are today, we now expect foreign currency fluctuations to be a headwind to revenue of approximately 3.5%. Our original expectations provided at the beginning of 2012 were that foreign currency fluctuations would be a headwind of slightly more than 1%.

Turning to operating margins, our original outlook called for operating margin expansion of approximately 100 basis points over 2011. However, due to the recently completed acquisitions and the resulting additional research and development and operating expenses, we will now be incurring for the second half of the year as well as the impact of greater foreign currency fluctuations, we are now expecting operating margins to be approximately 16.5% for the full year 2012. This translates into approximately 30 basis points of year-over-year growth. However, excluding the impact of acquisitions, the increase is approximately 110 basis points and in line with our original estimates.

And finally, moving to adjusted earnings per share. In addition to reaffirming our full year expectations for constant currency revenue growth, we're also reaffirming our previously provided full year expectations for adjusted earnings per share in the range of 425 for 445 per share. The strength of our underlying operations and the tax benefit received in the second quarter have allowed us to offset significant foreign currency headwinds, additional unplanned expense from the four recent acquisitions, and the removal of about $.13 per share associated with the orthopedics business.

Finally, I should note that our adjusted earnings per share adjustments are based upon an assumed U.S. dollar to Euro exchange rate of $1.25 to the balance of 2012.

With that, I'd like to turn the call back over to Benson for some closing remarks. Benson.

Benson Smith

Thanks, Tom. So in closing, I would like to say that I'm pleased with our performance to date particularly in the second quarter when the process of creating a platform that will allow for consistent, sustainable, and profitable revenue growth for many years to come.

We certainly recognize that market conditions are tough. In fact, tougher than we planned on as regards to currency and the overall economy. However, when you find yourself having to swim upstream in a difficult market, sometimes you just to pedal harder. And I appreciate the effort of many, many Teleflex employees around the world who are helping us do just that.

In spite of these tougher circumstances, I believe we've crafted a more detailed pathway to the achievement of our high five objectives. Price has helped and will continue to help. Product mix will help as we eliminate slow growth, low margin product lines, and replace them through R&D and acquisitions with higher growth higher margin products.

Improvements in our manufacturing cost structures and distribution facilities will also play a critical role. If the market conditions result in our falling short in one area, I believe we have enough compensatory room in the other areas to make up for the shortfall and still achieve our objectives.

And before I turn the call over for Q&A, I would like to tell you that we plan on doing a first ever analyst day this fall. We'll provide further details surrounding this event in the not too distant future. But we believe that this will serve as a great opportunity for the investment community to meet a new Teleflex.

That concludes the formal prepared remarks sections of the presentation. With that, I would like to turn the call back to the Operator for questions. Operator.

Question-and-Answer Session

Operator

(Operator instructions). And your first question comes from the line of Lawrence Keusch with Raymond James. Please proceed

Lawrence Keusch (Constantine) – Raymond James

Hi guys, this is actually Constantine for Larry. So I was wondering if you could first comment, just comments about price. I understand your kind of strategy laid out where over the next kind of three years you wanted to increase price by 100 basis points and we kind of finished year one. Can you speak of your confidence going forward that in this challenging environment you’re still able to achieve this goal?

Benson Smith

So we’re in the process of going through the same kind of analysis we went through last year in identifying the particular products where we thing we are underpriced in the marketplace. We are in the middle of the process actually of implementing that second round of price adjustments. I think our analysis at this point is that we have a good degree of confidence that this will continue through the next year. And then next July we’ll essentially be in the same position again of going through our product line and looking for the most obvious opportunities at that point in time. You know, I think our overall reaction is that the first year pricing improvements went somewhat better than what we expected and so based on that we do have a relatively high degree of confidence that we’re going to see that perpetuate certainly through the next 12 months.

Lawrence Keusch (Constantine) - Raymond James

And if you were kind of to assess the first year, how much of the price increase was really due to you guys putting kind of better controls in place for the sales versus really going and saying and asking the customers to really start to pay more for the product?

Benson Smith

Yes, so the better controls certainly was an element of it, but the substantial part of the price increases came from actual increases in prices communicated to customers.

Lawrence Keusch (Constantine) - Raymond James

Got you. Okay, and then my other question had to do with, so you guys consolidating your distributions in the U.S., can you quantify what kind of EPS secretion you’re expecting from it and when we’ll start to see that?

Benson Smith

Sure, so as we spoke, we are looking to consolidate three distribution facilities into one. We expect that the consolidation will be completed by next summer. For this year, it’s actually dilutive about $0.03 for the year, such included in our estimate for earnings for the year. Next year there won’t be substent of costs or benefit, but starting in 2014 we expect to benefit to be in the range of $4.5 to $5 million. So pretty significant improvement in our margins going forward as a result of that consolidation.

Lawrence Keusch (Constantine) - Raymond James

Great, thank you.

Operator

Your next question comes from the line of David Lewis with Morgan Stanley. Please proceed.

David Lewis (John) - Morgan Stanley

This is actually John in for David. You started mentioning IDN contracts for this quarter and I believe you said you signed a 11, can you just give a little more detail on the importance of these? And also, how many overall IDN contracts do you currently have?

Benson Smith

So there are, I think I would say just in general, we attach quite a bit of significance to these IDN contracts. They tend to be the largest hospital managed groups in the country, so in many cases the largest customers, and they operate in proximity with, but often somewhat independently with GPO contracts. And so they just are an important ingredient in getting at the largest group of hospital customers. We started putting more and more focused on that as a customer base last year when we expanded our sales force covering those accounts. We started to see some benefit from that in the first quarter where we got a new IDN contract. This year to date we’ve gotten 12, but 11 of those just in Q2 alone. So there’s been quite a good ramp up in terms of these really large customers forces as a result of that are directed directly at them.

David Lewis (John) - Morgan Stanley

Are the IDN contracts like inherently different than GPO ones, I mean, obviously if you go into a GPO contract you’re typically a list of a few different vendors for specific products. For IDN, is it more just you guys or is it more broad based still?

Benson Smith

So it can be both. I think that when they are committed volume contracts it’s just a much easier to be able to go into that IDN and get them to move because the commitment is from the hospital themselves. But there certainly are cases where they have awarded dual vendors as well where you battle it out with another competitor.

David Lewis (John) - Morgan Stanley

Okay, thank you. Very helpful. And also just one quick one on Europe. So it looks like it’s slow overall sequentially even when you adjust for the extra selling days last quarter, but pricing doesn’t really appear to be part of the slowdown as you guys kind of mentioned that you’re still getting the benefit there, so can you discuss the overall environment in Europe and what your expectations are over there for the future?

Benson Smith

So it’s as you can imagine, varies somewhat from country to country. We have seen some very, very modest slowdown in our accounts receivable, but not as much of a slowdown as we might have feared or expected. It’s obviously an area that we watch quite closely. There has been some reports of slowdown in procedures because of the economy. In Greece, for example, the concern of the moment right now is in Spain. But it’s hard for us to put a real precise quantitative number on that. It obviously remains an area of watchfulness for us. Other countries like Germany, you see much less effected right now. So it differs somewhat in terms of country by country and think that there is in all probabilities some at least slight slowdown in procedure utilization as a result of the uncertainty.

David Lewis (John) - Morgan Stanley

Thank you very much.

Operator

And your next question comes from the line of Rich Newitter with Lerink Swann. Please proceed.

Rich Newitter - Lerink Swann

Hi gentlemen, thanks for taking the questions. Just if I could maybe start with currency. I think you guys have talked about it in the past, could you just remind me what flow through down to EPS was this quarter and generally how you guys get there, where the natural hedge is versus any synthetic hedging you do?

Benson Smith

Sure, so for this quarter we had an impact from currency on revenue of about 4.1% headwind versus a year ago. That was about 15.7 million. On the gross margin it was about a

$7.7 million impact. And then operating profit I believe was about 1.1. In terms of the place where we have natural hedges versus synthetic, we actually hedge a good portion of our transactional exposure. Where we’re exposed is our translations. So from an accounting perspective we do about 30% of our business where our revenues are conducted in the euro, and that’s our greatest exposure. A little over 50% is in US dollar, and so that’s where we’re going to see the greatest impact going forward. We started out the year we’re expecting the euro to be in the 135 range and we’re now projecting it to be in the 125 range for the balance of the year. You know, if you look at rates this morning I think you’d see it’s a little under the 125, but it’s been moving around over the past month.

Rich Newitter - Lerink Swann

Okay, that’s really helpful. So just taking the increment, it sounds like at least a couple of pennies of incremental dilution for the for FX, can you just help me bridge once more your guidance is basically maintained, but there are some moving parts and some incremental dilution. I guess you said $.13 from the OEM divestiture from being moved to discontinued ops, you get another $.03 of dilution from the distribution consolidation. That’s $.16 there. And is the remainder just generally that you make up for that from an improved EBIT margin assumption in the base business and gross margin improvement?

Benson Smith

Well you are correct and there are a lot of things moving through our projections for the quarter, so there’s a lot of activity both in the economic environment as well as internally. So let me help you with that. If we were just to kind of start with [Inaudible]. For the full year we expect that to about a $.13 negative impact. The M&A is in the neighborhood of $0.16 negative for the year. The DC consolidation is another $0.03 or so cents. And on a full year basis we expect a currency to have a greater impact than what we saw in the 2nd quarter. So we expect that the net impact of the transaction and translation would be a net $0.09 or $0.10 in the negative. Helping to offset some of that is the upside that we saw in taxes that I referenced and that’s about $0.20 or $0.22 for the year. So overall, there’s a number of negative impacts flowing through offsetting that are some of our internal cost actions and other improvements we’re seeing in the gross margin. We’ve had a number of cost improvement programs going through the manufacturing side as well as ongoing cost savings initiatives in overhead. So those would then balance out to help offset kind of the negative impact. So while there’s a lot of negative impact from the currency we feel pretty good that we’ve been able to largely offset that, as well as the investments we’re making within internal productivity in other measures.

Rich Newitter - Lerink Swann

Okay, thanks for the clarity there and if I could just squeeze two more follow-ups on that. Just so what’s your back half tax assumption or what should we be modeling there? And then secondly, if you could just talk to timelines. You might have mentioned this is your earlier remarks, timelines for when we can see the recent acquisitions [Inaudible].

Benson Smith

Well in terms of the back half of the year on taxes, I’d be assuming in the 25 to 26% effective tax rate. And then in terms of the four acquisitions we closed this quarter, as

Benson mentioned, they’re a late stage technology pre-revenue. And so we look at those transactions as a complement to our internal R&D spending. As we looking into next year, some of them will be accretive, some will still be diluted. And as we approach next year, the way we’re going to look at that is it’s effectively an extension of our current R&D spending. We’ll look to balance kind of that total portfolio of spending to accomplish both our longer term strategic objectives, but at the same time recognizing that we better deliver on kind of mirror term financial and profit objective. So we haven’t worked through the detailed planning process to give you a specific number, but we do look to kind of balance and integrate those acquisitions into our existing portfolio and try some synergies as a result of that integration.

Rich Newitter - Lerink Swann

And sorry, just one last one. As we think about the incremental dilution we should primarily be thinking about kind of a bump up to the R&D line, if we were going to put it somewhere.

Benson Smith

Yes, it would be a bump up to the R&D line although there is some SG&A expenses as well.

Rich Newitter - Lerink Swann

Thank you very much.

Operator

Your next question comes from the line of Anthony Petrone of Jefferies group. Please proceed.

Anthony Petrone – Jefferies

Thank you, good morning. I have a few financial questions for Tom and then some questions for Benson as well. So just to start with the financial questions, Tom, is there any contribution actually in the quarter from the EFX and EZ-blocker technologies this quarter? I know that that closed before the end of the quarter so I’m wondering if there’s anything in there?

And then on the tax rate again, can you give us the normalized tax rate this quarter and on a go-forward basis, what is the benefit of the change in the tax estimate on future repatriation? Sort of how does that benefit not only this year, but next year?

And then if you can give us a quick rundown of the Med-Tech tax, how you’re looking at that next year and then I’ll go onto the other questions.

Thomas Powell

Okay. So a number of questions there. So in terms of the tax rate going forward, I think that, you know, as I mentioned, we are looking to be in kind of the 25 to 26% range back half of the year. Remind me the first question you threw out?

Anthony Petrone – Jefferies

So a couple there, one on the repatriation specifically that you mentioned in your prepared comments, I’m wondering what the benefit is specifically from that and the tax rate going forward?

Thomas Powell

Okay, so – so you had asked kind of a normalized rate, so excluding those impacts, we would have expected it to be more in the 28% range for the quarter. Now, in terms of the prepared remarks comment, there’ll be a benefit for the back half of this year with a little bit going into subsequent years. However, I wouldn’t assume a significant improvement as a result of that going forward. [Inaudible] 2012 impact.

Anthony Petrone – Jefferies

So in future years, it would be fair to say 28% is fair to model for the effective tax rate?

Thomas Powell

It would. And obviously we’re always looking for ways to become more tax efficient so we’ll continue to look for those opportunities, but that’s a fair assumption to start with yes.

Anthony Petrone – Jefferies

And then on the Med-Tech tax next year, just sort of how are you thinking about the excise tax assuming it goes through as is, sort of how you model that in next year, some companies are adjusting for the definition of service, I’m not sure that particularly applies to Teleflex, but sort of how do we think about that for 2013?

Thomas Powell

Well, it’s our assumption that it is going forward and that it will be an impact for us until we hear otherwise. What we’re working to do is to offset that impact through both continued cost productivity actions as well as some of the pricing initiatives that Benson outlined.

Anthony Petrone – Jefferies

All right, great And then for Benson, just a one-off strategy on one of the vascular, for strategy overall, you’ve been repositioning the portfolio for some time now with additions and divestitures, so as you look forward, I’m wondering, you know, to give us an overview again of where we can see potential additions to the portfolio and if there are any additional divestures that we should be expecting going forward?

Benson Smith

So the additional improvements in our franchises, I think that for the most part, you’re going to see some more of what we have been doing in the context of late-stage technology acquisitions. It’s – I think from a – just from a longer-term perspective, getting a more robust product pipeline is just an important gap that we need to fill and even with late-stage technology acquisitions, those products, it takes a couple of years even for products in that category to start to have some substantial impact on your revenue. So we’re going to be continuing to do that within the confines of our current – our business units. We do not see, at least for the next several years, any reason to have to go beyond our current – our current business portfolio. We do expect – we do expect and believe that we can find some other acquisitions within, again, within the confines of our current franchises which I’ll describe as sort of share enhancers which give us a much firmer position in some of our existing franchises and that’s something that – that basic strategy is something we’ve been articulating, I think, over the last year or so.

And excuse me, the second part of your question was?

Anthony Petrone – Jefferies

The last was actually on vascular for [inaudible] actually in prior quarters you’ve actually given us an update on the pipeline there. I think you started the year with 360 leads and you were trialing something to the tune of 30 sites per months with a pretty high win rate, so I’m wondering if there’s any update on those numbers? Thanks again.

Benson Smith

So I think that the – we are continuing to be quite pleased with the ratio of trials-to-win rates. The actual length of time it’s taking an account to go through that trial process is a little bit longer than what we had thought maybe a couple of months ago, so it has been difficult for us to keep up with 30 new trials a month, not because of accounts that aren’t willing to start the trials, but just our own seeling headcount capacity to keep up with those. So obviously, one of the issues for us to address as we look into next year is finding a way to accommodate those customers that are keenly interested in trying to [inaudible] the system. So we’re – we continue to be quite enthusiastic about the revenue contributions that that’s going to make starting – certainly starting in 2013.

Anthony Petrone – Jefferies

Thanks again.

Operator

And your next question comes from the line of Jonathan Palmer with CLSA. Please proceed.

Jonathan Palmer - CLSA

Good morning, gentlemen, can you hear me?

Benson Smith

Yes.

Thomas Powell

Good morning.

Jonathan Palmer - CLSA

First one for Benson, could you talk about the strength you’re seeing out of Asia and Latin America and maybe talk about the incremental investments and the magnitude and timing of those going forward?

Benson Smith

So we have a – I think we have a quite good ground games in both Asia and Latin America. We’re continuing to benefit from the expansion of healthcare utilization, particularly in China and Brazil, I think are the two – the two real leaders for us in that area. In both cases, there’s a – an effort on our part to expand our direction selling capability, that’s particularly true in China. So every year we’re adding to the sales headcount that we have. The – we certainly have a strategy to also expand our local manufacturing in China, which will not just provide us with some cost advantages in that particular market, but also some speedier reviews on the regulatory front. I think a very similar strategy can be articulated for Brazil. In both cases, there’s much more favorable treatment either from a regulatory or from a tariff perspective for manufacturers that have some local presence there. Even in spite of – even in spite of some appearance slowdown in GDP growth for both those markets, they still, in our view, remain growers over the next five to ten years and so we’re continuing to make an investment in those regions.

Jonathan Palmer - CLSA

Is there any opportunity to accelerate those investments?

Benson Smith

So is there – so the answer to that is probably always yes. I think that the – at least one thing to understand is that from the time we design a new product here and get it ready to go, there’s often an 18-month to 24-month lag before it actually works its way through the Chinese Regulatory Department. So we are – we are, right now are focusing on getting more of those products into the system sooner and then our decision around headcount really relates to what things are we able to sell in that particular year in China as a result of registration submitted earlier. So it’s not quite as easy as just turning on the spicket and adding headcount, you have to do the work up front in getting all the work done to get products registered.

Jonathan Palmer - CLSA

That was very helpful. And then one question for Tom. You talked about cost savings in manufacturing and also some programs in OpEx, could you maybe just remind us of some of the details in terms of the size there and again, the timing?

Thomas Powell

Well, we are continually looking for programs that we can put into our manufacturing operations, whether it’s automation or other, you know, purchasing opportunities. So we haven’t given specific details into the programs and I’m a little reluctant to do through all the details just because there’s so many different initiatives. But I think it’s fair to say that, you know, as a result of some of the – kind of the adverse outcomes from FX and some of these investments we choose to make. You know, we took some pretty swift and decisive actions to offset those negative impacts with cost savings within the company and spoke to the manufacturing and kind of overhead side of the business that will continue to watch what’s happening externally and make certain that we’re taking appropriate cost actions to keep ourselves on track for this.

Operator

And you next question comes from the line of James Sidoti – Sidoti & Company, please proceed.

James Sidoti – Sidoti & Company

Good Morning, can you hear me? I don’t want to beat a dead horse, but I just want to iron out these tax issues. You said there was a $0.12 benefit from the way you were going to handle the repatriation of overseas funds, is that correct?

Benson Smith

Yes.

James Sidoti – Sidoti & Company

And then there was another benefit from the resolution of the issues in Germany, what was the impact on that on (ATS)?

Benson Smith

It was roughly $7.7 million dollar impact.

Thomas Powell

Jim, just to be clear, the $7.7 million dollars was excluded from our adjusted earnings of $1.23.

James Sidoti – Sidoti & Company

Okay, so the $0.12 was in the $1.23.

Thomas Powell

That is correct.

James Sidoti – Sidoti & Company

Okay, and so, for your annual guidance is that only the $0.12 in the annual guidance, or is the other one in the annual guidance as well.

Thomas Powell

The way you should think about it, is that $0.12 was really a second quarter impact and there’re also a couple other pennies of benefits in the second quarter. That will become around $0.20 -$0.22 on a full year bases for us. We would not include that German and Italian settlement in the full year number either. So, essentially the way we’re looking at that is that’s a discreet benefit that we realized during the quarter consistent with our practice in the past, we would exclude that in calculating adjusted earnings and adjusted earnings per-share. So, essentially the $0.12 if you combine all the other miscellaneous upside is about $0.15 in the quarter from taxes, and that becomes $0.20 - $0.22 for the full year.

James Sidoti – Sidoti & Company

Okay, so you have a $0.22 gain but then that’s offset by about $0.42 of headwinds due to the currency, the investiture, and then the acquisitions, so you really – you’ve maintained your guidance with an additional $0.20 of expenses. Is that correct?

Thomas Powell

Yes. When you think about it, we recognized some time ago that currencies were not going in the direction that we had hoped at the beginning of the year, and also we wanted to make some investments, both in the acquisitions as well as the DC consolidation. Mostly because we view those as critical to our future success in driving margin improvements, pricing, and other actions. So we look for ways to offset those investments and those impacts, because we also wanted to maintain our current financial performance for the year. So, essentially a lot of negative impacts hitting us, we’ve been fortunate to be able to identify programs to offset them and feel pretty good about where we are right now.

James Sidoti – Sidoti & Company

Okay, so what really has allowed you to maintain guidance? Is it increased cost savings or better than expected performance in certain areas?

Benson Smith

This is Benson, it’s really combination of all of those elements. Take the benefit from the taxes out of it, all the rest is being made up from a series of contributions that come from different areas. So, it’s almost evenly split among a variety of different sources. I don’t know if this is helpful or not, but if you just look at the second quarter in isolation, consensus was about, I think, $1.10 for us this quarter. That included $0.04 from Ortho, so we’re moving that, that would put consensus down at $1.06. When you take out all the affective taxes, our EPS was $1.08, so in spite of all those negatives, we still came in $0.02 ahead, and I think that’s a good barometer in terms of being able to make up for some of those negatives.

Thomas Powell

In addition to the cost action (GDS) because there are other things that are going well. In fact as we spoke earlier, pricing is going well, you know, for the first half of the year, I think overall we had about 110 basis points in Q1 and another 130 roughly in Q2. And that’s running a little bit ahead of where we initially had expected, so we do have benefits other than just cost in terms of executing this year.

Benson Smith

So, it’s probably a long list of actions and it’s hard to isolate into a particular, but we feel pretty good that we’ve been able to offset some of the investments in the adverse effects impact through internal action.

James Sidoti – Sidoti & Company

All right, and then just to followup on the med device tax. Assuming that you are not able to pass that through, what do you expect the impact will be, and how will you account for it? What’s your line item on the income statement?

Benson Smith

Assuming it can’t be passe through, then the impact – we say the upper end impact is $15 million dollars, although based on some of the nuances and the calculations on what’s included and what’s excluded, we believe that is the upper end, and could be 10, 15, even 20% lower. We’ll have to work through that at the final legislation is put out. And that would then be recorded in the operating expense section of our income statement.

James Sidoti – Sidoti & Company

Would that be a gross margin impact, or a SGNA?

Thomas Powell

No, it would be in the SGNA.

James Sidoti – Sidoti & Company

Okay, all right, thank you.

Benson Smith

Your welcome.

Operator

And as a reminder ladies and gentlemen, if you wish to ask a question, it’s Star 1 on your touchtone phone. And we do have a follow-up question from the line of Lawrence Keusch (Constantine) – Raymond James. Please proceed.

Lawrence Keusch (Constantine) – Raymond James

Hi guys, this is Constantine in for Larry. I just want to comeback – I just want to get greater clarity on the tax repatriation. So, can you explain how it works. Is it basically, you know, management decision saying “Okay, for this year we’re not going to bring as much cash from overseas as we thought”. So, as a result the tax rate is going to be lower?

And then, also just part of that question, if I look at your $0.20 to $0.22 benefit from tax, and you have $0.12 of benefit this quarter, is the $0.12 benefit that you got this quarter, is it basically also includes benefit from Q1?

Thomas Powell

Okay, so in answer to your question, the benefits this quarter would also include some impact, or kind of catch-up for Q1. So, some of that is looking at first-half versus second-half.

Lawrence Keusch (Constantine) – Raymond James

Okay. And what about, is it basically just kind of (inaudible) management discretion of you see your capital needs throughout the year?

Thomas Powell

It’s really not based on management discretion, but rather as an outcome of some specific actions, you know, some of it comes from a credit that we’re able to get as a result of the settlement of the German and Italian audits. You know, we paid some money (inaudible) that which provides a credit against future repatriation. So, there’s a number of things that actually happened that resulted in the benefit.

Lawrence Keusch (Constantine) – Raymond James

Got you, okay. And then if we can just get your latest thoughts on, just you know, uses of cash, chases, you know, more than 20% of your market cap. Can you just update kind of what you’re thinking is in terms of (inaudible) MNA, if you have increase share repurchase, any kind of capital allocation update would be great.

Thomas Powell

We currently have about $545 million of cash. The majority of it sits outside of the U.S. In terms of our number one priority, we continue to look for strategic acquisitions as the first use of that cash. Obviously given where the cash resides an international acquisition would be looked favorably upon.

The other option would be to potentially consider repayment of debt, but given the fact that the cash does reside outside of the U.S. and that average pretax interest (expeller) or average debt expenses is around 4%, you know, I would feel comfortable leaving that cash out there to look for potential acquisition targets, and put it to work that way.

Lawrence Keusch (Constantine) – Raymond James

How confident do you feel that kind – I know you can’t necessarily predict timing of deals, but if you can, you know, deploy that cash versus just sitting on the balance sheet?

Thomas Powell

We’re actively looking to deploy, and to your point, you can’t always predict that. But that is something that we’ve been looking at, and based on our screening process we see a number of interesting opportunities for us. So, we demonstrated in the second quarter that we put some of that cash to use with the four acquisitions that we referenced, and there’s a greater pipeline out there that we continue to investigate.

Lawrence Keusch (Constantine) – Raymond James

Thank you.

Operator

And with no further questions in queue, I’d like to hand the conference back over to Jake for further closing remarks.

Jake Elguicze

Thank you operator, and thank you all for joining us today. This concludes the Teleflex Incorporated Second Quarter Earnings Conference Call. Have a good day.

Operator

Ladies and gentlemen, that concludes your conference, you may now disconnect. Have a great day.

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