| TELEFLEX INC ITEM 1A RISK FACTORS Our business is subject to certain risks that could adversely affect our business, financial condition and results of operations |
| These risks include, but are not limited to, the following: The costs associated with our restructuring and divestiture program may be greater than expected |
| We are engaged in a restructuring and divestiture program, which requires management to utilize significant estimates related to realizable values of assets made redundant or obsolete and expenses for severance and other employee separation costs, lease cancellation and other exit costs |
| Although the program is substantially completed, actual results could differ materially from those estimated due to, among other things: inability to sell businesses at prices, or within time-periods, anticipated by management; unanticipated expenditures in connection with the effectuation of the program; costs and length of time required to comply with legal requirements applicable to certain aspects of the program; inability to realize anticipated cost savings; and unanticipated difficulties in connection with consolidation of manufacturing and administrative functions |
| Many of the industries in which we operate are cyclical, and, accordingly, our business is subject to changes in the economy |
| Although the diversified nature of our business reduces the risk that all of our operations would experience simultaneous cyclical downturns, many of the businesses which we operate are subject to specific industry and general economic cycles, most acutely in the automotive, marine, aerospace and transportation industries |
| Accordingly, any downturn in these or other markets in which we participate could materially adversely affect us |
| Moreover, if demand changes and we fail to respond accordingly, our results of operations could be materially adversely affected in any given quarter |
| 10 _________________________________________________________________ [67]Table of Contents We are subject to risks associated with our non-US 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 42prca of our total assets and 55prca of our total revenues were attributable to products distributed from our operations outside the US Our international operations are subject to varying degrees of risk inherent in doing business outside the US, 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-US markets to continue to represent a significant portion of our net revenue |
| Our consoli- 11 _________________________________________________________________ [68]Table of Contents dated financial statements reflect translation of items denominated in non-US currencies to US dollars, our reporting currency |
| When the US 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 US 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 US, 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 or 12 _________________________________________________________________ [69]Table of Contents 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 US Food and Drug Administration regulates the approval, manufacturing and sale and marketing of many of our medical products |
| The US 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 all 13 _________________________________________________________________ [70]Table of Contents 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 15prca 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 |