Teleflex 10Q 2006 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 24, 2006


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 1-5353

TELEFLEX INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		23-1147939(I.R.S. employer identification no.)

155 South Limerick Road, Limerick, Pennsylvania (Address of principal executive offices)		19468 (Zip Code)

(610) 948-5100

(Registrant’s telephone number, including area code)

(None)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange ActRule 12b-2).

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of October 17, 2006:


Common Stock, $1.00 Par Value (Title of each class)		39,015,104 (Number of shares)

TELEFLEX INCORPORATED
QUARTERLY REPORT ONFORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 24, 2006

TABLE OF CONTENTS


		Page

	PART I —FINANCIAL INFORMATION
Item 1:	Financial Statements:
	Condensed Consolidated Statements of Income for the three and nine months ended September 24, 2006 and September 25, 2005 (Unaudited)		2
	Condensed Consolidated Balance Sheets as of September 24, 2006 and December 25, 2005 (Unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 24, 2006 and September 25, 2005 (Unaudited)		4
	Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3:	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4:	Controls and Procedures		24

	PART II —OTHER INFORMATION
Item 1:	Legal Proceedings		25
Item 1A:	Risk Factors		25
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3:	Defaults Upon Senior Securities		25
Item 4:	Submission of Matters to a Vote of Security Holders		25
Item 5:	Other Information		25
Item 6:	Exhibits		26

SIGNATURES			27
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
Certification of Chief Executive Officer pursuant to Rule 13a-14(b)
Certification of Chief Financial Officer pursuant to Rule 13a-14(b)

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 24,			September 25,			September 24,			September 25,
	2006			2005			2006			2005
	(Dollars and shares in thousands, except per share)

Revenues	$	639,132		$	587,390		$	1,953,914		$	1,867,999
Materials, labor and other product costs		453,990			421,327			1,382,650			1,337,956

Gross profit		185,142			166,063			571,264			530,043
Selling, engineering and administrative expenses		115,009			104,666			367,793			337,236
(Gain) loss on sales of businesses and assets		(453	)		(5,569	)		732			(5,569	)
Restructuring and impairment charges		3,275			5,776			16,243			19,723

Income from continuing operations before interest, taxes and minority interest		67,311			61,190			186,496			178,653
Interest expense		10,283			11,000			31,158			33,747
Interest income		(1,742	)		(1,202	)		(4,877	)		(2,296	)

Income from continuing operations before taxes and minority interest		58,770			51,392			160,215			147,202
Taxes on income from continuing operations		15,861			10,360			40,691			33,288

Income from continuing operations before minority interest		42,909			41,032			119,524			113,914
Minority interest in consolidated subsidiaries, net of tax		6,627			5,318			18,215			15,197

Income from continuing operations		36,282			35,714			101,309			98,717

Operating income (loss) from discontinued operations (including gain (loss) on disposal of $(401), $(1,291), $663 and $34,830, respectively)		(473	)		(4,299	)		(24	)		3,645
Taxes (benefit) on income (loss) from discontinued operations		(157	)		(2,185	)		(426	)		1,063

Income (loss) from discontinued operations		(316	)		(2,114	)		402			2,582

Net income	$	35,966		$	33,600		$	101,711		$	101,299

Earnings (losses) per share:
Basic:
Income from continuing operations	$	0.92		$	0.88		$	2.53		$	2.43
Income (loss) from discontinued operations	$	(0.01	)	$	(0.05	)	$	0.01		$	0.06

Net income	$	0.91		$	0.83		$	2.54		$	2.50

Diluted:
Income from continuing operations	$	0.92		$	0.87		$	2.52		$	2.41
Income (loss) from discontinued operations	$	(0.01	)	$	(0.05	)	$	0.01		$	0.06

Net income	$	0.91		$	0.82		$	2.53		$	2.47

Dividends per share	$	0.285		$	0.250		$	0.820		$	0.720
Weighted average common shares outstanding:
Basic		39,465			40,569			40,019			40,552
Diluted		39,566			41,185			40,241			40,972

The accompanying notes are an integral part of the condensed consolidated financial statements.

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 24,		December 25,
	2006		2005
	(Dollars in thousands)

ASSETS
Current assets
Cash and cash equivalents	$	202,425	$	239,536
Accounts receivable, net		408,914		421,236
Inventories		422,290		404,271
Prepaid expenses		31,608		20,571
Deferred tax assets		66,254		57,915
Assets held for sale		14,859		16,899

Total current assets		1,146,350		1,160,428
Property, plant and equipment, net		424,084		447,816
Goodwill		495,340		504,666
Intangibles and other assets		247,717		259,218
Investments in affiliates		24,095		24,666
Deferred tax assets		5,304		6,254

Total assets	$	2,342,890	$	2,403,048


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current borrowings	$	59,323	$	125,510
Accounts payable		211,505		206,548
Accrued expenses		189,430		206,231
Income taxes payable		38,160		46,222
Deferred tax liabilities		296		408
Liabilities held for sale		117		66

Total current liabilities		498,831		584,985
Long-term borrowings		486,001		505,272
Deferred tax liabilities		49,948		50,535
Other liabilities		106,075		102,782

Total liabilities		1,140,855		1,243,574
Minority interest in equity of consolidated subsidiaries		35,058		17,400
Commitments and contingencies
Shareholders’ equity		1,166,977		1,142,074

Total liabilities and shareholders’ equity	$	2,342,890	$	2,403,048

The accompanying notes are an integral part of the condensed consolidated financial statements.

TELEFLEX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 24,			September 25,
	2006			2005
	(Dollars in thousands)

Cash Flows from Operating Activities of Continuing Operations:
Net income	$	101,711		$	101,299
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations		(402	)		(2,582	)
Depreciation expense		62,119			65,930
Amortization expense of intangible assets		10,037			10,868
Amortization expense of deferred financing costs		963			757
Stock-based compensation		5,100			—
(Gain) loss on sales of businesses and assets		732			(5,569	)
Impairment of long-lived assets		5,230			2,664
Minority interest in consolidated subsidiaries		18,215			15,197
Other		649			(831	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		30,052			74,029
Inventories		(6,838	)		(13,535	)
Prepaid expenses		(4,468	)		2,991
Accounts payable and accrued expenses		(6,257	)		(12,319	)
Income taxes payable and deferred income taxes		(3,142	)		6,144

Net cash provided by operating activities from continuing operations		213,701			245,043

Cash Flows from Financing Activities of Continuing Operations:
Proceeds from long-term borrowings		—			61,085
Reduction in long-term borrowings		(33,402	)		(122,417	)
Decrease in notes payable and current borrowings		(60,789	)		(46,358	)
Proceeds from stock compensation plans		8,939			21,191
Payments to minority interest shareholders		(618	)		(14,035	)
Purchases of treasury stock		(93,552	)		(39,263	)
Dividends		(33,006	)		(29,200	)

Net cash used in financing activities from continuing operations		(212,428	)		(168,997	)

Cash Flows from Investing Activities of Continuing Operations:
Expenditures for property, plant and equipment		(42,343	)		(45,690	)
Payments for businesses acquired		(4,334	)		(14,701	)
Proceeds from sales of businesses and assets		3,643			124,420
Proceeds from affiliates		3,002			173
Working capital payment for divested business		(6,029	)		—

Net cash provided by (used in) investing activities from continuing operations		(46,061	)		64,202

Cash Flows from Discontinued Operations — 2005 Revised (See Note 1):
Net cash provided by (used in) operating activities		851			(384	)
Net cash used in financing activities		—			(198	)
Net cash used in investing activities		(93	)		(2,682	)

Net cash provided by (used in) discontinued operations		758			(3,264	)

Effect of exchange rate changes on cash and cash equivalents		6,919			(6,861	)

Net increase (decrease) in cash and cash equivalents		(37,111	)		130,123
Cash and cash equivalents at the beginning of the period		239,536			115,955

Cash and cash equivalents at the end of the period	$	202,425		$	246,078

The accompanying notes are an integral part of the condensed consolidated financial statements.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share)

Note 1 — Basis of presentation/accounting policies

Teleflex Incorporated (the “Company”) is a diversified industrial company specializing in the design, manufacture and distribution of specialty-engineered products. The Company serves a wide range of customers in niche segments of the commercial, medical and aerospace industries. The Company’s products include: driver controls, motion controls, power and vehicle management systems and fluid management systems for commercial industries; disposable medical products, surgical instruments, medical devices and specialty devices for hospitals and health-care providers; and repair products and services, precision-machined components and cargo-handling systems for commercial and military aviation as well as other industrial markets.

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions forForm 10-Q andRule 10-01 ofRegulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The accompanying financial information is unaudited; however, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the financial position, results of operations and cash flows for the periods reported have been included. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.

This quarterly report should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited consolidated financial statements presented in the Company’s Annual Report onForm 10-K for the fiscal year ended December 25, 2005 filed with the Securities and Exchange Commission.

The Company has revised its condensed 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 condensed 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. The Company revised its 2005 condensed consolidated balance sheet to adjust for the netting of non-current deferred tax assets and liabilities. In addition, certain reclassifications have been made to the prior year condensed consolidated financial statements to conform to current period presentation. Certain financial information is presented on a rounded basis, which may cause minor differences.

Stock-based compensation: On December 26, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees based on estimated fair values. SFAS No. 123(R) supersedes previous accounting under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, providing supplemental implementation guidance for SFAS 123(R). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).

SFAS No. 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. The Company adopted SFAS No. 123(R) using the modified prospective application method, which requires the application of the standard starting from December 26, 2005, the first day of the Company’s 2006 fiscal year. The Company’s condensed consolidated financial statements for the three and nine months ended September 24, 2006 reflect the impact of SFAS No. 123(R).

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-based compensation expense related to employee stock options recognized under SFAS No. 123(R) for the three and nine months ended September 24, 2006 was $1,795 and $5,100, respectively, and is included in selling, engineering and administrative expenses. The total income tax benefit recognized for share-based compensation arrangements for the three and nine months ended September 24, 2006 was $438 and $1,060, respectively. As of September 24, 2006, total unamortized stock-based compensation cost related to non-vested stock options, net of expected forfeitures, was $10,487, which is expected to be recognized over a weighted-average period of 2.0 years.

Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the intrinsic value method, no stock-based compensation expense for employee stock options had been recognized in the Company’s consolidated statements of operations because the exercise price of the Company’s stock options granted to employees equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method the Company used in adopting SFAS No. 123(R), the Company’s results of operations prior to fiscal 2006 have not been restated to reflect, and do not include, the impact of SFAS No. 123(R).

Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the three and nine months ended September 24, 2006 included compensation expense for (1) stock-based awards granted prior to, but not yet vested as of December 25, 2005, based on the fair value on the grant date estimated in accordance with the pro forma provisions of SFAS No. 123 and (2) compensation expense for the stock-based awards granted subsequent to December 25, 2005, based on the fair value on the grant date estimated in accordance with the provisions of SFAS No. 123(R). As stock-based compensation expense recognized for the third quarter and first nine months of fiscal 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The following table illustrates the pro forma net income and earnings per share for the three and nine months ended September 25, 2005 as if compensation expense for stock options issued to employees had been determined consistent with SFAS No. 123:


	Three Months			Nine Months
	Ended			Ended
	September 25,			September 25,
	2005			2005

Net income, as reported	$	33,600		$	101,299
Deduct: Stock-based employee compensation determined under fair value based method, net of tax of $501 and $1,478, respectively		(817	)		(2,413	)

Pro forma net income	$	32,783		$	98,886

Earnings per share — basic:
Net income per share, as reported	$	0.83		$	2.50
Pro forma net income per share	$	0.81		$	2.44
Earnings per share — diluted:
Net income per share, as reported	$	0.82		$	2.47
Pro forma net income per share	$	0.80		$	2.42

Stock-based compensation expense is measured using a multiple point Black-Scholes option pricing model that takes into account highly subjective and complex assumptions. The expected life of options granted is derived from the vesting period of the award, as well as historical exercise behavior, and represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on a blend of historical volatility and implied volatility derived from publicly traded options to purchase the Company’s common stock, which the

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company believes is more reflective of the market conditions and a better indicator of expected volatility than solely using historical volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the option.

The fair value for options granted in 2006 was estimated at the date of grant using a multiple point Black-Scholes option pricing model. The fair value for options granted in 2005 was estimated at the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used:


	Three Months Ended				Nine Months Ended
	September 24,		September 25,		September 24,		September 25,
	2006		2005		2006		2005

Risk-free interest rate		5.07%		4.11%		4.43%		4.09%
Expected life of option		4.46 yrs.		4.60 yrs.		4.46 yrs.		4.60 yrs.
Expected dividend yield		2.15%		1.40%		1.55%		1.71%
Expected volatility		24.49%		24.60%		23.30%		24.43%

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” that allows for a simplified method to establish the beginning balance of the additional paid-in capital pool (“APIC Pool”) related to the tax effects of employee stock-based compensation and to determine the subsequent impact on the APIC Pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123(R). During the second quarter of 2006, the Company elected to adopt the simplified method.

See Note 9 for additional information regarding the Company’s stock compensation plans.

Note 2 — New accounting standards

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 adopted the provisions of this statement on December 26, 2005, and it did not 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 thefair-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 adopted the provisions of this statement on December 26, 2005 using modified prospective application. See the “Stock-based compensation” section of Note 1 above for the effect of adoption on the Company’s financial position, results of operations and 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

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

changes and error corrections made in fiscal years beginning after December 15, 2005. The Company adopted the provisions of this statement on December 26, 2005, and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

Certain Hybrid Financial Instruments: In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS No. 155 provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with SFAS No. 133. SFAS No. 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. The election may be made on aninstrument-by-instrument basis and can be made only when a hybrid financial instrument is initially recognized or when certain events occur that constitute a remeasurement (i.e., new basis) event for a previously recognized hybrid financial instrument. An entity must document its election to measure a hybrid financial instrument at fair value, either concurrently or via a preexisting policy for automatic election. Once the fair value election has been made, that hybrid financial instrument may not be designated as a hedging instrument pursuant to SFAS No. 133. Additionally, SFAS No. 155 requires that interests in securitized financial assets be evaluated to identify whether they are freestanding derivatives or hybrid financial instruments containing an embedded derivative that requires bifurcation (previously, these were exempt from SFAS No. 133). When determining whether an interest in securitized financial assets is a hybrid financial instrument, SFAS No. 155 does not consider a concentration of credit risk, in the form of subordination of one interest in securitized assets to another, to be an embedded derivative. The provisions of this statement are applicable for all financial instruments acquired, issued or subject to a remeasurement (new basis) event occurring in fiscal years beginning after September 15, 2006. The Company is currently evaluating the impact of SFAS No. 155 on the Company’s financial position, results of operations and cash flows.

Uncertain Tax Positions: In June 2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 requires that the impact of a tax position be recognized in the financial statements if it is more likely than not that the tax position will be sustained on tax audit, based on the technical merits of the position. FIN No. 48 also provides guidance on derecognition of tax positions that do not meet the “more likely than not” standard, classification of tax assets and liabilities, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN No. 48 on the Company’s financial position, results of operations and cash flows.

Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. The provisions of this statement are effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS No. 157 on the Company’s financial position, results of operations and cash flows.

Quantifying Misstatements: In September 2006, the Securities and Exchange Commission issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which is aimed at eliminating the diversity in practice of quantifying an identified misstatement by putting forward a single quantification framework to be used by all public companies. The provisions of SAB No. 108 are effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company is currently evaluating the impact of SAB No. 108 on the Company’s financial position, results of operations and cash flows.

Defined Benefit Pension and Other Postretirement Plans: In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires the recognition of the funded status of a defined benefit plan in the statement of financial position, requires that changes in the funded status be recognized through comprehensive income, changes the measurement date for defined benefit plan assets and obligations to the entity’s fiscal year-end and expands disclosures. The recognition and disclosures under SFAS No. 158 are required as of the end of the fiscal year ending after December 15, 2006 while the new measurement date is effective for fiscal years ending after December 15, 2008. The measurement date for the Company’s defined benefit pension and postretirement plan assets and obligations is currently the Company’s fiscal year-end. The Company is currently evaluating the impact of SFAS No. 158 on the Company’s financial position, results of operations and cash flows.

Note 3 — Acquisitions

Acquisition of Hudson Respiratory Care, Inc.

In connection with the acquisition of Hudson Respiratory Care Inc. (“HudsonRCI”) in July 2004, 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 September 24, 2006. 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 Emerging Issues Task Force (“EITF”) IssueNo. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” During June 2006, the Company determined that the remaining integration cost accrual exceeded the total amount of the remaining estimated integration costs and therefore adjusted the accrual with a corresponding reduction to goodwill. Set forth below is a reconciliation of the Company’s future integration cost accrual:


	Involuntary Employee			Facility Closure and
	Termination Benefits			Restructuring Costs			Total

Balance at December 25, 2005	$	7,162		$	4,914		$	12,076
Costs incurred		(4,225	)		(3,073	)		(7,298	)
Adjustments to reserve		(2,517	)		(1,027	)		(3,544	)

Balance at September 24, 2006	$	420		$	814		$	1,234

Note 4 — Restructuring

2006 Restructuring Program

In June 2006, the Company began certain restructuring initiatives that affect all three of the Company’s operating segments. These initiatives involve the consolidation of operations and a related reduction in workforce at several of the Company’s facilities in Europe and North America. The Company has determined to undertake these initiatives as a means to improving operating performance and to better leverage the Company’s existing resources.

For the three and nine months ended September 24, 2006, the charges associated with the 2006 restructuring program by segment that are included in restructuring and impairment charges were as follows:


	Three Months Ended September 24, 2006
	Medical		Aerospace		Total

Termination benefits	$	155	$	650	$	805
Other restructuring costs		20		—		20

	$	175	$	650	$	825

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Nine Months Ended September 24, 2006
	Commercial		Medical		Aerospace		Total

Termination benefits	$	485	$	1,419	$	650	$	2,554
Other restructuring costs		—		94		—		94

	$	485	$	1,513	$	650	$	2,648

Termination benefits are comprised of severance-related payments for all employees terminated in connection with the 2006 restructuring program. Other restructuring costs include expenses primarily related to the consolidation of operations and the reorganization of administrative functions.

At September 24, 2006, the accrued liability associated with the 2006 restructuring program consisted of the following and was entirely due within twelve months:


	Balance at							Balance at
	December 25,		Subsequent					September 24,
	2005		Accruals		Payments			2006

Termination benefits	$	—	$	2,554	$	(652	)	$	1,902
Other restructuring costs		—		94		(94	)		—

	$	—	$	2,648	$	(746	)	$	1,902

As of September 24, 2006, the Company expects to incur the following future restructuring costs associated with the 2006 restructuring program in its Commercial, Medical and Aerospace segments over the next three quarters:


	Commercial		Medical		Aerospace

Termination benefits	$	725 - 900	$	1,750 - 2,250	$	550 - 850
Contract termination costs		—		500 - 600		500 - 600
Other restructuring costs		950 - 1,425		300 - 500		250 - 400

	$	1,675 - 2,325	$	2,550 - 3,350	$	1,300 - 1,850

During the second quarter of 2006, the Company determined that a minority held investment was impaired and recorded a charge of $3,868, which is included in restructuring and impairment charges.

Aerospace Segment Restructuring Activity

During the first quarter of 2006, the Company began a restructuring activity in its Aerospace Segment. The planned actions relate to the closure of a manufacturing facility, termination of employees and relocation of operations. For the three and nine months ended September 24, 2006, the Company recorded termination benefits of $131 and $437, respectively, asset impairments of $139 for both periods and other restructuring costs of $37 for both periods that are included in restructuring and impairment charges. As of September 24, 2006, the accrued liability associated with this activity was $179 and was entirely due within twelve months. The Company expects to incur future restructuring costs associated with this activity of approximately $900 during the remainder of 2006.

2004 Restructuring and Divestiture Program

During the fourth quarter of 2004, the Company announced and commenced implementation of a restructuring and divestiture program designed to improve future operating performance and position the Company for future earnings growth. The actions have included exiting or divesting non-core or low performing businesses, consolidating manufacturing operations and reorganizing administrative functions to enable businesses to share services.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the three and nine months ended September 24, 2006 and the three and nine months ended September 25, 2005, the charges, including changes in estimates, associated with the 2004 restructuring and divestiture program by segment that are included in restructuring and impairment charges were as follows:


	Three Months Ended		Nine Months Ended
	September 24, 2006		September 24, 2006
	Medical		Medical

Termination benefits	$	68	$	(20	)
Contract termination costs		221		954
Asset impairments		—		927
Other restructuring costs		1,854		7,253

	$	2,143	$	9,114


	Three Months Ended September 25, 2005
	Commercial		Medical		Total

Termination benefits	$	715	$	1,237	$	1,952
Contract termination costs		148		48		196
Other restructuring costs		448		3,180		3,628

	$	1,311	$	4,465	$	5,776


	Nine Months Ended September 25, 2005
	Commercial			Medical		Aerospace		Total

Termination benefits	$	2,711		$	4,735	$	517	$	7,963
Contract termination costs		(313	)		957		—		644
Asset impairments		156			610		1,898		2,664
Other restructuring costs		859			6,983		610		8,452

	$	3,413		$	13,285	$	3,025	$	19,723

Termination benefits are comprised of severance-related payments for all employees terminated in connection with the 2004 restructuring and divestiture program. Contract termination costs relate primarily to the termination of leases in conjunction with the consolidation of facilities in the Company’s Medical Segment and in 2005 also include a $531 reduction in the estimated cost associated with a lease termination in conjunction with the consolidation of manufacturing facilities in the Company’s Commercial Segment. Asset impairments relate primarily to machinery and equipment associated with the consolidation of manufacturing facilities. Other restructuring costs include expenses primarily related to the consolidation of manufacturing operations and the reorganization of administrative functions.

At September 24, 2006, the accrued liability associated with the 2004 restructuring and divestiture program consisted of the following and was entirely due within twelve months:


			Subsequent
	Balance at		Accruals and						Balance at
	December 25,		Changes in						September 24,
	2005		Estimates			Payments			2006

Termination benefits	$	7,848	$	(20	)	$	(6,326	)	$	1,502
Contract termination costs		775		954			(726	)		1,003
Other restructuring costs		31		7,253			(7,284	)		—

	$	8,654	$	8,187		$	(14,336	)	$	2,505

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 24, 2006, the Company expects to incur the following future restructuring costs associated with the 2004 restructuring and divestiture program in its Medical Segment over the next three quarters:


Termination benefits	$	125 - 150
Contract termination costs		350 - 1,200
Other restructuring costs		2,275 - 3,625

	$	2,750 - 4,975

Note 5 — Inventories

Inventories consisted of the following:


	September 24,			December 25,
	2006			2005

Raw materials	$	212,523		$	199,955
Work-in-process		73,958			70,870
Finished goods		180,497			178,019

		466,978			448,844
Less: Inventory reserve		(44,688	)		(44,573	)

Inventories	$	422,290		$	404,271

Note 6 — Goodwill and other intangible assets

Changes in the carrying amount of goodwill, by operating segment, for the nine months ended September 24, 2006 are as follows:


	Commercial			Medical			Aerospace		Total

Goodwill at December 25, 2005	$	105,435		$	391,933		$	7,298	$	504,666
Acquisitions		—			101			—		101
Dispositions		(172	)		(938	)		—		(1,110	)
Adjustments⁽¹⁾		—			(14,076	)		—		(14,076	)
Translation adjustment		3,756			2,003			—		5,759

Goodwill at September 24, 2006	$	109,019		$	379,023		$	7,298	$	495,340


(1)		Goodwill adjustments relate primarily to the adjustment of the HudsonRCI integration cost accrual (see Note 3) and to purchase price allocation changes associated with certain tax adjustments.

Intangible assets consisted of the following:


	Gross Carrying Amount				Accumulated Amortization
	September 24,		December 25,		September 24,		December 25,
	2006		2005		2006		2005

Customer lists	$	81,121	$	80,362	$	18,763	$	13,930
Intellectual property		59,686		59,174		26,711		22,967
Distribution rights		36,023		35,820		17,906		16,602
Trade names		85,474		85,464		—		—

	$	262,304	$	260,820	$	63,380	$	53,499

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amortization expense related to intangible assets was $3,366 and $10,037 for the three and nine months ended September 24, 2006, respectively, and $3,500 and $10,868 for the three and nine months ended September 25, 2005, respectively. Estimated annual amortization expense for each of the five succeeding years is as follows:


2006	$	13,100
2007		12,000
2008		12,000
2009		11,900
2010		11,700

Note 7 — Comprehensive income

The following table summarizes the components of comprehensive income:


	Three Months Ended					Nine Months Ended
	September 24,			September 25,		September 24,		September 25,
	2006			2005		2006		2005

Net income	$	35,966		$	33,600	$	101,711	$	101,299
Financial instruments marked to market		(300	)		928		1,680		(3,062	)
Cumulative translation adjustment		2,632			163		30,862		(32,998	)

Comprehensive income	$	38,298		$	34,691	$	134,253	$	65,239

Note 8 — Changes in shareholders’ equity

Set forth below is a reconciliation of the Company’s issued common shares:


	Three Months Ended				Nine Months Ended
	September 24,		September 25,		September 24,		September 25,
	2006		2005		2006		2005
	(Shares in thousands)

Common shares, beginning of period		41,282		40,791		41,123		40,450
Shares issued under compensation plans		21		275		180		616

Common shares, end of period		41,303		41,066		41,303		41,066

On July 25, 2005, the Company’s Board of Directors authorized the repurchase of up to $140 million of outstanding Teleflex common stock over twelve months ended July 2006. In June 2006, the Company’s Board of Directors extended for an additional six months, until January 2007, its authorization for the repurchase of shares. Under the approved plan, the Company repurchased (in thousands) a total of 2,317 shares on the open market during 2005 and the first nine months of 2006 for an aggregate purchase price of $140,000, and aggregate fees and commissions of $69, with 1,262 shares repurchased during the third quarter of 2006 for an aggregate purchase price of $70,902, and aggregate fees and commissions of $38.

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner except that the weighted average number of shares is increased for dilutive securities. The difference between basic and diluted

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

weighted average common shares results from the assumption that dilutive stock options were exercised. A reconciliation of basic to diluted weighted average shares outstanding is as follows:


	Three Months Ended				Nine Months Ended
	September 24,		September 25,		September 24,		September 25,
	2006		2005		2006		2005
	(Shares in thousands)

Basic		39,465		40,569		40,019		40,552
Dilutive shares assumed issued		101		616		222		420

Diluted		39,566		41,185		40,241		40,972

Weighted average stock options (in thousands) that were antidilutive and therefore not included in the calculation of earnings per share were 693 and 389 for the three and nine months ended September 24, 2006, respectively, and 4 and 259 for the three and nine months ended September 25, 2005, respectively.

Note 9 — Stock compensation plans

The Company has stock-based compensation plans that provide for the granting of incentive and non-qualified options to officers and key employees to purchase up to 4,000,000 shares of common stock at the market price of the stock on the dates options are granted. Outstanding options generally are exercisable three to five years after the date of the grant and expire no more than ten years after the grant.

The following table summarizes the option activity as of September 24, 2006 and changes during the nine months then ended:


						Weighted
				Weighted		Average
	Shares			Average		Remaining		Aggregate
	Subject to			Exercise		Contractual		Intrinsic
	Options			Price		Life in Years		Value

Outstanding, beginning of the period		1,809,234		$	46.82
Granted		684,631			64.23
Exercised		(166,420	)		45.85
Forfeited or expired		(134,739	)		54.92

Outstanding, end of the period		2,192,706		$	51.83		7.4	$	12,257

Exercisable, end of the period		1,076,222		$	45.07		5.9	$	10,338

As of September 24, 2006, 902,472 shares were available for future grant under the plans.

The weighted average grant-date fair value was $12.20 and $14.26 for options granted during the three and nine months ended September 24, 2006, respectively, and $17.29 and $12.37 for options granted during the three and nine months ended September 25, 2005, respectively. The total intrinsic value of options exercised was $98 and $3,447 during the three and nine months ended September 24, 2006, respectively, and $5,773 and $9,679 during the three and nine months ended September 25, 2005, respectively.

Note 10 — 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 primarily 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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Obligations undernon-U.S. plans are systematically provided for by depositing funds with trustees or by book reserves.

The Company and certain of its 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:


	Pension						Other Benefits				Pension						Other Benefits
	Three Months Ended						Three Months Ended				Nine Months Ended						Nine Months Ended
	September 24,			September 25,			September 24,		September 25,		September 24,			September 25,			September 24,		September 25,
	2006			2005			2006		2005		2006			2005			2006		2005

Service cost	$	1,024		$	1,258		$	77	$	65	$	3,065		$	3,918		$	220	$	191
Interest cost		3,358			2,756			398		357		10,074			8,700			1,140		1,057
Expected return on plan assets		(3,690	)		(2,690	)		—		—		(11,139	)		(8,419	)		—		—
Net amortization and deferral		486			505			266		122		1,492			1,568			761		361
Curtailment charge		—			116			—		115		—			116			—		115

Net benefit cost	$	1,178		$	1,945		$	741	$	659	$	3,492		$	5,883		$	2,121	$	1,724

Through September 24, 2006, contributions to U.S. and foreign pension plans amounted to $8,745. The Company’s contributions to U.S. and foreign plans during all of 2006 are expected to be approximately $10 million.

Note 11 — Commitments and contingent liabilities

Product warranty liability: The Company warrants to the original purchaser of certain of its products that it will, at its option, repair or replace, without charge, such products if they fail due to a manufacturing defect. Warranty periods vary by product. The Company has recourse provisions for certain products that would enable recovery from third parties for amounts paid under the warranty. The Company accrues for product warranties when, based on available information, it is probable that customers will make claims under warranties relating to products that have been sold, and a reasonable estimate of the costs (based on historical claims experience relative to sales) can be made. Set forth below is a reconciliation of the Company’s estimated product warranty liability for the nine months ended September 24, 2006:


Balance — December 25, 2005	$	14,156
Accruals for warranties issued in 2006		7,615
Settlements (cash and in kind)		(9,536	)
Accruals related to pre-existing warranties		402
Effect of translation		586

Balance — September 24, 2006	$	13,223

Operating leases: The Company uses various leased facilities and equipment in its operations. The terms for these leased assets vary depending on the lease agreement. In connection with these operating leases, the Company had residual value guarantees in the amount of $6,413 at September 24, 2006. The Company’s future payments cannot exceed the minimum rent obligation plus the residual value guarantee amount. The guarantee amounts are tied to the unamortized lease values of the assets under lease, and are due should the Company decide neither to renew these leases, nor to exercise its purchase option. At September 24, 2006, the Company had no liabilities

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recorded for these obligations. Any residual value guarantee amounts paid to the lessor may be recovered by the Company from the sale of the assets to a third party.

Accounts receivable securitization program: The Company uses an accounts receivable securitization program to gain access to enhanced credit markets and reduce financing costs. As currently structured, the Company sells 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 the obligations of the Company. 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 qualify as sales of receivables and accordingly, $40,068 of accounts receivable and the related amounts previously recorded in notes payable were removed from the condensed consolidated balance sheet as of both September 24, 2006 and December 25, 2005.

Environmental: The Company is subject to contingencies pursuant to environmental laws and regulations that in the future may require the Company to take further action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the Company or other parties. Much of this liability results from the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), often referred to as Superfund, the U.S. Resource Conservation and Recovery Act (“RCRA”) and similar state laws. These laws require the Company to undertake certain investigative and remedial activities at sites where the Company conducts or once conducted operations or at sites where Company-generated waste was disposed.

Remediation activities vary substantially in duration and cost from site to site. These activities, and their associated costs, depend on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, as well as the presence or absence of potentially responsible parties. At September 24, 2006, the Company’s condensed consolidated balance sheet included an accrued liability of $7,296 relating to these matters. Considerable uncertainty exists with respect to these costs and, under adverse changes in circumstances, potential liability may exceed the amount accrued as of September 24, 2006. The time frame over which the accrued amounts may be paid out, based on past history, is estimated to be 15-20 years.

Litigation: The Company is a party to various lawsuits and claims arising in the normal course of business. These lawsuits and claims include actions involving product liability, intellectual property, employment and environmental matters. Based on information currently available, advice of counsel, established reserves and other resources, the Company does not believe that any such actions are likely to be, individually or in the aggregate, material to its 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 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 condensed 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.

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 12 — Business segment information

Information about continuing operations by business segment is as follows:


	Three Months Ended						Nine Months Ended
	September 24,			September 25,			September 24,			September 25,
	2006			2005			2006			2005

Segment data:
Commercial	$	290,357		$	270,173		$	932,051		$	888,687
Medical		207,722			196,553			628,604			624,410
Aerospace		141,053			120,664			393,259			354,902

Revenues		639,132			587,390			1,953,914			1,867,999

Commercial		14,756			9,199			60,092			59,377
Medical		44,223			38,938			111,819			114,878
Aerospace		12,205			11,521			34,994			20,054

Segment operating profit		71,184			59,658			206,905			194,309
Less: Corporate expenses		7,678			3,579			21,649			16,699

Total operating profit⁽¹⁾		63,506			56,079			185,256			177,610
(Gain) loss on sales of businesses and assets		(453	)		(5,569	)		732			(5,569	)
Restructuring and impairment charges		3,275			5,776			16,243			19,723
Minority interest		(6,627	)		(5,318	)		(18,215	)		(15,197	)

Income from continuing operations before interest, taxes and minority interest	$	67,311		$	61,190		$	186,496		$	178,653


(1)		Total operating profit is defined as segment operating profit, which includes a segment’s revenues reduced by its materials, labor and other product costs along with the segment’s selling, engineering and administrative expenses and minority interest, less unallocated corporate expenses. (Gain) loss on sales of businesses and assets, restructuring and impairment charges, interest income and expense and taxes on income are excluded from the measure.

Note 13 — Discontinued operations and assets held for sale

During the third quarter of 2006, the Company recognized a loss on disposal of $401 in connection with a post-closing purchase price adjustment based on working capital for its divested automotive pedal systems business.

In August 2005, the Company completed the sale of its automotive pedal systems business and received $7,500 in gross proceeds. The Company recognized a loss on the sale of $983. During the third quarter of 2005, the Company sold a European medical product sterilization business that was classified as held for sale during the second quarter of 2005 and recognized a pre-tax gain on the sale of $2,150. In addition, the Company recognized a loss on sale of assets of $2,458 related to the divestiture of Sermatech International in the first quarter of 2005.

For financial statement purposes, the assets, liabilities, results of operations and cash flows of these businesses have been segregated from those of continuing operations and are presented in the Company’s condensed consolidated financial statements as discontinued operations and assets and liabilities held for sale.

Revenues of discontinued operations were $1,099 and $3,626 for the three and nine months ended September 24, 2006, respectively, and $16,043 and $111,094 for the three and nine months ended September 25, 2005,

TELEFLEX INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Concluded)

respectively. Operating income (loss) from discontinued operations was $(473) and $(24) for the three and nine months ended September 24, 2006, respectively, and $(4,299) and $3,645 for the three and nine months ended September 25, 2005, respectively.

During the third quarter of 2006, the Company sold an asset held for sale with a carrying value of $2,294 and recognized a pre-tax gain on the sale of $453. During the third quarter of 2005, the Company sold assets, including assets held for sale totaling $12,545, and recognized an aggregate pre-tax gain on these sales of $5,569. The Company is actively marketing its remaining assets held for sale.

Assets and liabilities held for sale are comprised of the following:


	September 24,		December 25,
	2006		2005

Assets held for sale:
Accounts receivable, net	$	404	$	1,341
Inventories		—		47
Property, plant and equipment		14,452		14,451
Other		3		1,060

Total assets held for sale	$	14,859	$	16,899

Liabilities held for sale:
Accrued expenses	$	117	$	66


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

All statements made in this Quarterly Report onForm 10-Q, other than statements of historical fact, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” “prospects,” and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about our business and the industry and markets in which we operate. These statements are not guarantees of future performance and 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 programs; competitive market conditions and resulting effects on revenues and pricing; increases in raw material costs that cannot be recovered in product pricing; and 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 of our Annual Report onForm 10-K for the fiscal year ended December 25, 2005. We expressly disclaim any intent or obligation to update these forward-looking statements, except as otherwise specifically stated by us.

Overview

We are focused on achieving consistent and sustainable growth through the continued development of our core businesses and carefully selected acquisitions. Our internal growth initiatives include the development of new products, moving existing products into market adjacencies in which we already participate with other products and the expansion of market share. Our core revenue growth in the third quarter of 2006 as compared to 2005, excluding the impacts of currency, acquisitions and divestitures, was 6%. Core growth was strongest in our Aerospace Segment, which grew 13%, and weakest in our Commercial Segment, which grew 3% year over year.

Total operating profit increased 13% in the third quarter of 2006 due primarily to cost and productivity improvements across all of our segments, offset, in part, by $1.8 million of stock-based compensation expense, recognized in connection with our adoption of Statement of Financial Accounting Standards, or SFAS, No. 123(R) in the first quarter of 2006.

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 and the comparable activity of divested companies within the most recent twelve-month period. The following comparisons exclude the impact of the automotive pedal systems business, Sermatech International business, European medical product sterilization business and small medical business, which have been presented in our condensed consolidated financial results as discontinued operations.

Comparison of the three and nine months ended September 24, 2006 and September 25, 2005

Revenues increased 9% in the third quarter of 2006 to $639.1 million from $587.4 million in the third quarter of 2005. This increase was due to an increase of 6% from core growth and an increase of 3% from currency. Revenues increased 5% in the first nine months of 2006 to $1.95 billion from $1.87 billion in the first nine months of 2005, principally due to core growth. The Commercial, Medical and Aerospace segments comprised 45%, 33% and 22% of our third quarter 2006 revenues, respectively, and 48%, 32% and 20% of our revenues for the first nine months of 2006, respectively.

Materials, labor and other product costs as a percentage of revenues improved slightly to 71.0% in the third quarter of 2006 from 71.7% in the third quarter of 2005 and improved slightly to 70.8% in the first nine months of 2006 from 71.6% in the first nine months of 2005. Selling, engineering and administrative expenses (operating expenses) as a percentage of revenues increased slightly to 18.0% in the third quarter of 2006 compared with 17.8% in the third quarter of 2005. Operating expenses as a percentage of revenues increased to 18.8% in the first nine months of 2006 compared with 18.1% in the first nine months of 2005, due primarily to $8.6 million of costs associated with the initial phases of an information systems implementation program in our Medical Segment, delayed shipments and costs associated with restructuring activities in our Medical Segment during the first half of 2006 and the impact of expensing stock options under SFAS No. 123(R).

Interest expense declined in the third quarter and first nine months of 2006 principally as a result of lower debt balances. Interest income increased in the third quarter of 2006 primarily due to more favorable interest rates compared to the prior year quarter and increased in the first nine months of 2006 primarily due to higher average cash balances and more favorable interest rates compared to the prior period. The effective income tax rate was 26.99% and 25.40% in the third quarter and first nine months of 2006, respectively, compared with 20.16% and 22.61% in the third quarter and first nine months of 2005, respectively. These increases in the effective income tax rate were primarily the result of a higher proportion of income in the third quarter and first nine months of 2006 earned in countries with relatively higher tax rates. Minority interest in consolidated subsidiaries increased $1.3 million and $3.0 million in the third quarter and first nine months of 2006, respectively, due to increased profits from our entities that are not wholly-owned. Net income for the third quarter of 2006 was $36.0 million, an increase of 7% from the third quarter of 2005, due primarily to increased operating profits in the third quarter of 2006. Net income for the first nine months of 2006 was $101.7 million compared to $101.3 million in the first nine months of 2005. Diluted earnings per share increased 11% to $0.91 for the third quarter of 2006 and increased 2% to $2.53 for the first nine months of 2006.

On December 26, 2005, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees based on estimated fair values. SFAS No. 123(R) supersedes previous accounting under Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees,” for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin, or SAB, No. 107, providing supplemental implementation guidance for SFAS 123(R). We have applied the provisions of SAB No. 107 in our adoption of SFAS No. 123(R).

SFAS No. 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. We adopted SFAS No. 123(R) using the modified prospective application method, which requires the application of the standard starting from December 26, 2005, the first day of our 2006 fiscal year. Our condensed consolidated financial statements for the third quarter and first nine months of 2006 reflect the impact of SFAS No. 123(R).

Stock-based compensation expense related to employee stock options recognized under SFAS No. 123(R) for the third quarter and first nine months of 2006 was $1.8 million and $5.1 million, respectively, and is included in selling, engineering and administrative expenses. The total income tax benefit recognized for share-based compensation arrangements for the third quarter and first nine months of 2006 was $0.4 million and $1.1 million, respectively. As of September 24, 2006, total unamortized stock-based compensation cost related to non-vested stock options, net of expected forfeitures, was $10.5 million, which is expected to be recognized over a weighted-average period of 2.0 years.

Additional information regarding stock-based compensation and our stock compensation plans is presented in Notes 1 and 9 to our condensed consolidated financial statements included in this Quarterly Report onForm 10-Q.

In June 2006, we began certain restructuring initiatives that affect all three of our operating segments. These initiatives involve the consolidation of operations and a related reduction in workforce at several of our facilities in Europe and North America. We have determined to undertake these initiatives as a means to improving operating performance and to better leverage our existing resources. The charges associated with the 2006 restructuring program that are included in restructuring and impairment charges during the third quarter and first nine months of

2006 totaled $0.8 million and $2.6 million, respectively. Of the $0.8 million, 21% and 79% were attributable to our Medical and Aerospace segments, respectively. Of the $2.6 million, 18%, 57% and 25% were attributable to our Commercial, Medical and Aerospace segments, respectively. As of September 24, 2006, we expect to incur future restructuring costs associated with our 2006 restructuring program of between $5.5 million and $7.5 million in our Commercial, Medical and Aerospace segments over the next three quarters.

During the first quarter of 2006, we began a restructuring activity in our Aerospace Segment. The planned actions relate to the closure of a manufacturing facility, termination of employees and relocation of operations. The charges associated with this activity that are included in restructuring and impairment charges during the third quarter and first nine months of 2006 totaled $0.3 million and $0.6 million, respectively. We expect to incur future restructuring costs associated with this activity of approximately $0.9 million during the remainder of 2006.

During the fourth quarter of 2004, we announced and commenced implementation of a restructuring and divestiture program designed to improve future operating performance and position us for future earnings growth. The actions have included exiting or divesting non-core or low performing businesses, consolidating manufacturing operations and reorganizing administrative functions to enable businesses to share services. The charges, including changes in estimates, associated with the 2004 restructuring and divestiture program for continuing operations that are included in restructuring and impairment charges during the third quarter and first nine months of 2006 totaled $2.1 million and $9.1 million, respectively, and were attributable to our Medical Segment. The charges, including changes in estimates, associated with the 2004 restructuring and divestiture program for continuing operations that are included in restructuring and impairment charges during the third quarter and first nine months of 2005 totaled $5.8 million and $19.7 million, respectively. Of the $5.8 million, 23% and 77% were attributable to our Commercial and Medical segments, respectively. Of the $19.7 million, 17%, 67% and 16% were attributable to our Commercial, Medical and Aerospace segments, respectively. As of September 24, 2006, we expect to incur future restructuring costs associated with our 2004 restructuring and divestiture program of between $2.8 million and $5.0 million in our Medical Segment over the next three quarters.

For a more complete discussion of our restructuring programs, see Note 4 to our condensed consolidated financial statements included in this Quarterly Report onForm 10-Q.

Segment Reviews

The following is a discussion of our segment operating results.

Comparison of the three and nine months ended September 24, 2006 and September 25, 2005

Commercial

Commercial Segment revenues increased 7% in the third quarter of 2006 to $290.4 million from $270.2 million in the third quarter of 2005. The increase was due to a 4% increase from currency and a 3% increase from core growth. The segment benefited from increased sales of alternative fuel systems, particularly in Europe, and auxiliary power units for heavy truck applications, and sales of heavy-duty rigging and cable used in marine construction and the securing of oil platforms. Sales of products for the marine OEM and aftermarket were relatively flat as sales of new products offset weaker sales of marine aftermarket parts and systems for boatbuilders. Sales of automotive driver control products declined compared to the prior year quarter as several automotive manufacturers in North America and Europe reduced production levels.

In the first nine months of 2006, Commercial Segment revenues increased 5% to $932.1 million from $888.7 million in the first nine months of 2005, principally due to core growth. The segment benefited from increased sales in the first nine months of alternative fuel systems and auxiliary power systems, and sales of heavy-duty rigging and cable used in marine construction and the securing of oil platforms and increased sales during the first half of 2006 of automotive driver controls for the North American and Asian markets.

Commercial Segment operating profit increased 60% in the third quarter of 2006 to $14.8 million from $9.2 million in the third quarter of 2005. This increase primarily reflects cost benefits from improved operational efficiencies for industrial products compared to the prior year quarter which was negatively impacted by duplicate costs and inefficiencies related to the transfer of products between two Tier 2 automotive supply facilities and the

bankruptcy of an automotive supply customer. Operating profit as a percent of revenues increased to 5.1% in the third quarter of 2006 from 3.4% in the third quarter of 2005

In the first nine months of 2006, Commercial Segment operating profit increased 1% to $60.1 million from $59.4 million in the first nine months of 2005. Operating profit improvements resulting from sales of auxiliary power units and other higher margin industrial products were largely offset by less favorable product mix resulting from an increase in volume for automotive products and a decline in volume for marine aftermarket products. Operating profit as a percent of revenues declined slightly to 6.4% in the first nine months of 2006 from 6.7% in the first nine months of 2005.

Medical

Medical Segment revenues increased 6% in the third quarter of 2006 to $207.7 million from $196.6 million in the third quarter of 2005. The increase was due to a 4% increase from core growth and a 2% increase from currency. The segment benefited primarily from increased sales of medical devices to hospital customers in Europe and North America and increased sales of specialty devices for medical device manufacturers.

In the first nine months of 2006, Medical Segment revenues increased 1% to $628.6 million from $624.4 million in the first nine months of 2005. The increase was due to a 2% increase from core growth, offset, in part, by a decrease of 1% from currency. The segment benefited from new product sales and sales of diagnostic and therapeutic device products sold to medical device manufacturers, offset by a decline in sales of orthopedic specialty devices sold to medical device manufacturers and a decline in sales of disposable and surgical products in Europe during the first half of 2006.

Medical Segment operating profit increased 14% in the third quarter of 2006 to $44.2 million from $38.9 million in the third quarter of 2005 due primarily to cost and productivity improvements in the core businesses related to benefits of the restructuring programs. Operating profit as a percent of revenues increased to 21.3% in the third quarter of 2006 from 19.8% in the third quarter of 2005.

In the first nine months of 2006, Medical Segment operating profit declined 3% to $111.8 million from $114.9 million in the first nine months of 2005. This decline primarily reflects the impact of costs associated with operational inefficiencies, resulting from consolidation of facilities and distribution centers and the initial phases of an information systems implementation program during the first half of 2006, offset, in part, by cost and productivity improvements in the third quarter. Operating profit as a percent of revenues declined to 17.8% in the first nine months of 2006 from 18.4% in the first nine months of 2005.

Aerospace

Aerospace Segment revenues increased 17% in the third quarter of 2006 to $141.1 million from $120.7 million in the third quarter of 2005. This increase was due to increases of 13% from core growth, 2% from currency and 2% from acquisitions. This growth was primarily attributable to increased installations of new wide-body cargo systems, sales of cargo system aftermarket parts and, to a lesser extent, sales of repair products and services and precision machined components for aircraft engines.

In the first nine months of 2006, Aerospace Segment revenues increased 11% to $393.3 million from $354.9 million in the first nine months of 2005. This increase was due to increases of 10% from core growth and 1% from acquisitions. Core growth in narrow body and wide body cargo handling systems, repair services and precision machined components was partially offset by the $6.5 million decrease in revenues resulting from the phase out of our industrial gas turbine aftermarket services business in 2005.

Aerospace Segment operating profit increased 6% in the third quarter of 2006 to $12.2 million from $11.5 million in the third quarter of 2005. Operating profit increased in the quarter as a result of cost and productivity improvements and higher volume levels for repair products and services and precision-machined components despite an unfavorable mix in the cargo systems business created by an increase in new installations of wide body cargo systems. Operating profit as a percent of revenues decreased to 8.7% in the third quarter of 2006 from 9.5% in the third quarter of 2005.

In the first nine months of 2006, Aerospace Segment operating profit increased 75% to $35.0 million from $20.1 million in the first nine months of 2005. Higher volume and improvements in precision-machined components and the cargo systems businesses contributed to the improvement as did a reduction in losses resulting from the exit of the industrial gas turbine aftermarket services business. Operating profit as a percent of revenues increased to 8.9% in the first nine months of 2006 from 5.7% in the first nine months of 2005.

Liquidity and Capital Resources

Operating activities from continuing operations provided net cash of $213.7 million during the first nine months of 2006. Changes in our operating assets and liabilities during the first nine months of 2006, the most significant of which was a decrease in accounts receivable, resulted in a net cash inflow of $9.3 million. Our financing activities from continuing operations during the first nine months of 2006 consisted primarily of purchases of shares of our common stock of $93.6 million, a decrease in notes payable and current borrowings of $60.8 million, a reduction in long-term borrowings of $33.4 million and payment of dividends of $33.0 million. Our investing activities from continuing operations during the first nine months of 2006 consisted primarily of capital expenditures of $42.3 million. During the first nine months of 2006, we also made a $6.0 million payment in connection with a post-closing purchase price adjustment based on working capital for a divested business and a $4.3 million deferred payment related to a prior period acquisition. Net cash provided by discontinued operations was $0.8 million in the first nine months of 2006.

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. 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 qualify as sales of receivables and accordingly, $40.1 million of accounts receivable and the related amounts previously recorded in notes payable were removed from the condensed consolidated balance sheet as of both September 24, 2006 and December 25, 2005.

On July 25, 2005, our Board of Directors authorized the repurchase of up to $140 million of our outstanding common stock over twelve months ended July 2006. In June 2006, our Board of Directors extended for an additional six months, until January 2007, its authorization for the repurchase of shares. Under the approved plan, we repurchased a total of 2,317,347 shares on the open market during 2005 and the first nine months of 2006 for an aggregate purchase price of $140.0 million, and aggregate fees and commissions of $0.1 million, with 1,627,247 shares repurchased during the first nine months of 2006 for an aggregate purchase price of $93.5 million, and aggregate fees and commissions of $0.1 million.

The following table provides our net debt to total capital ratio:


	September 24,			December 25,
	2006			2005
	(Dollars in thousands)

Net debt includes:
Current borrowings	$	59,323		$	125,510
Long-term borrowings		486,001			505,272

Total debt		545,324			630,782
Less: Cash and cash equivalents		202,425			239,536

Net debt	$	342,899		$	391,246

Total capital includes:
Net debt	$	342,899		$	391,246
Shareholders’ equity		1,166,977			1,142,074

Total capital	$	1,509,876		$	1,533,320

Percent of net debt to total capital		23	%		26	%

The decline in our percent of net debt to total capital for September 24, 2006 as compared to December 25, 2005 is primarily due to the repayment of current and long-term borrowings during the first nine months of 2006, which was funded principally by cash generated from operations.

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.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in market risk for the quarter ended September 24, 2006. See the information set forth in Part II, Item 7A of the Company’s Annual Report onForm 10-K for the fiscal year ended December 25, 2005.


Item 4.	Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.	Legal Proceedings

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, intellectual property, employment and environmental 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 1A.	Risk Factors

There have been no significant changes in risk factors for the quarter ended September 24, 2006. See the information set forth in Part I, Item 1A of the Company’s Annual Report onForm 10-K for the fiscal year ended December 25, 2005.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

On July 25, 2005, our Board of Directors authorized the repurchase of up to $140 million of outstanding Teleflex common stock over twelve months ended July 2006. In June 2006, our Board of Directors extended for an additional six months, until January 2007, its authorization for the repurchase of shares. Under the approved plan, we repurchased a total of 2,317,347 shares on the open market during 2005 and the first nine months of 2006 for an aggregate purchase price of $140.0 million, and aggregate fees and commissions of $0.1 million. The following table sets forth certain information regarding our repurchases of our equity securities on the open market during the third quarter of 2006:


					Total Number		Approximate
					of Shares		Dollar Value of
					Purchased as		Shares that May
	Total Number		Average		Part of Publicly		Yet Be Purchased
	of Shares		Price Paid		Announced Plans		Under the Plans
	Purchased		Per Share		or Programs		or Programs

June 26, 2006 - July 30, 2006		257,200	$	52.60		257,200	$	57,342,000
July 31, 2006 - August 27, 2006		1,004,547	$	57.15		1,004,547	$	—
August 28, 2006 - September 24, 2006		—	$	—		—	$	—

		1,261,747	$	56.22		1,261,747	$	—


Item 3.	Defaults Upon Senior Securities

None.


Item 4. ��	Submission of Matters to a Vote of Security Holders

None.


Item 5.	Other Information

None.


Item 6.	Exhibits

The following exhibits are filed as part of this report:


Exhibit No.				Description

	31	.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.


	31	.2	—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.


	32	.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.


	32	.2	—	Certification of Chief Financial Officer, Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TELEFLEX INCORPORATED


	By:	/s/ Jeffrey P. Black

Jeffrey P. Black

Chairman and

Chief Executive Officer

(Principal Executive Officer)


	By:	/s/ Martin S. Headley

Martin S. Headley

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)


	By:	/s/ Charles E. Williams

Charles E. Williams

Corporate Controller and

Chief Accounting Officer

(Principal Accounting Officer)

Dated: October 26, 2006

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Teleflex (TFX) 10-Q2006 Q3 Quarterly report

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