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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 1, 2001
OR
[ ]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)
<Table>
DELAWARE 23-1147939
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(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
630 WEST GERMANTOWN PIKE, SUITE 450
PLYMOUTH MEETING, PA 19462
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</Table>
(610) 834-6301
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(TELEPHONE NUMBER INCLUDING AREA CODE)
NONE
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(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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of the latest practicable date.
<Table>
<Caption>
CLASS OUTSTANDING AT JULY 1, 2001
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Common Stock, $1.00 Par Value 38,809,143
</Table>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
JULY 1, DEC. 31,
2001 2000
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ASSETS
Current assets
Cash and cash equivalents................................. $ 47,269 $ 45,139
Accounts receivable less allowance for doubtful
accounts............................................... 378,339 334,346
Inventories............................................... 304,095 259,845
Prepaid expenses.......................................... 31,069 22,708
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760,772 662,038
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 516,158 489,503
Investments in affiliates................................... 40,464 39,515
Intangibles and other assets................................ 285,958 210,232
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$1,603,352 $1,401,288
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of borrowings and demand loans............ $ 190,932 $ 118,037
Accounts payable and accrued expenses..................... 236,536 235,704
Income taxes payable...................................... 34,209 30,131
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461,677 383,872
Long-term borrowings........................................ 284,966 220,557
Deferred income taxes and other............................. 117,485 106,437
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864,128 710,866
Shareholders' equity........................................ 739,224 690,422
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$1,603,352 $1,401,288
========== ==========
</Table>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 1, JUNE 25, JULY 1, JUNE 25,
2001 2000 2001 2000
-------- -------- -------- --------
Revenues........................................ $503,004 $465,553 $973,738 $893,143
-------- -------- -------- --------
Cost of sales................................... 359,469 331,840 694,970 638,018
Operating expenses.............................. 90,680 84,714 175,177 161,130
Interest expense................................ 7,378 5,427 14,089 10,461
-------- -------- -------- --------
457,527 421,981 884,236 809,609
-------- -------- -------- --------
Income before taxes............................. 45,477 43,572 89,502 83,534
Provision for taxes on income................... 14,416 14,248 28,460 27,396
-------- -------- -------- --------
Net income...................................... $ 31,061 $ 29,324 $ 61,042 $ 56,138
======== ======== ======== ========
Earnings per share
Basic......................................... $ 0.80 $ 0.77 $ 1.58 $ 1.47
Diluted....................................... $ 0.79 $ 0.76 $ 1.56 $ 1.46
Dividends per share............................. $ 0.170 $ 0.150 $ 0.320 $ 0.280
Average number of common and common equivalent
shares outstanding
Basic......................................... 38,755 38,180 38,626 38,138
Diluted....................................... 39,359 38,624 39,198 38,519
</Table>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
SIX MONTHS ENDED
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JULY 1, JUNE 25,
2001 2000
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Cash flows from operating activities:
Net income................................................ $ 61,042 $ 56,138
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization.......................... 44,189 37,561
(Increase) in accounts receivable...................... (21,338) (13,304)
(Increase) in inventory................................ (15,599) (6,945)
(Increase) in prepaid expenses......................... (5,313) (1,233)
(Decrease) increase in accounts payable and accrued
expenses.............................................. (10,561) 12,783
Increase in income taxes payable....................... 2,266 4,809
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54,686 89,809
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Cash flows from financing activities:
Proceeds from new borrowings.............................. 108,476 28,000
Reduction in long-term borrowings......................... (19,026) (9,820)
Increase in current borrowings and demand loans........... 63,630 1,765
Proceeds from stock compensation plans.................... 6,950 3,532
Dividends................................................. (12,368) (10,684)
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147,662 12,793
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Cash flows from investing activities:
Expenditures for plant assets............................. (49,573) (39,385)
Payments for businesses acquired.......................... (149,059) (67,679)
Investments in affiliates................................. 806 (2,988)
Other..................................................... (2,392) (589)
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(200,218) (110,641)
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Net increase (decrease) in cash and cash equivalents........ 2,130 (8,039)
Cash and cash equivalents at the beginning of the period.... 45,139 29,040
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Cash and cash equivalents at the end of the period.......... $ 47,269 $ 21,001
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</Table>
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TELEFLEX INCORPORATED
STATEMENT OF COMPREHENSIVE INCOME
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 1, JUNE 25, JULY 1, JUNE 25,
2001 2000 2001 2000
------- -------- ------- --------
Net income.......................................... $31,061 $29,324 $61,042 $56,138
Unrealized holding gain............................. -- 1,005 -- 1,240
Financial instruments marked to market.............. 1,593 -- (2,323) --
Cumulative translation adjustment................... (2,570) (3,960) (10,363) (7,875)
------- ------- ------- -------
Comprehensive income................................ $30,084 $26,369 $48,356 $49,503
======= ======= ======= =======
</Table>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements for
the three months and six months ended July 1, 2001 and June 25, 2000 contain all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to present fairly the financial position,
results of operations and cash flows for the periods then ended in accordance
with the current requirements for Form 10-Q.
NOTE 2
As of January 1, 2001, the Company adopted Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). This statement requires companies to record financial instruments on the
balance sheet as assets or liabilities, measured at fair value. The Company
periodically uses derivative instruments such as interest rate swaps and forward
currency contracts to hedge the exposure of fluctuating interest rates and
foreign currencies. The Company is exposed to foreign currency exchange
movements from transactions in various currencies, primarily the Euro, British
pound and Canadian dollar. The Company utilizes foreign currency forward
contracts in order to manage volatility associated with foreign currency
purchases and sales. Contracts typically have maturities of less than one year.
Changes in fair value of the Company's financial instruments are recorded in the
income statement or as part of comprehensive income. Qualifying forward exchange
contracts are accounted for as cash flow hedges when the hedged item is a
forecasted transaction. Gains and losses on these instruments are recorded in
other comprehensive income/loss until the underlying transaction is recorded in
earnings. When the hedged item is realized, gains or losses are reclassified
from accumulated other comprehensive income/loss to the statement of income. At
July 1, 2001, the Company recognized a net $2.3 million charge in shareholders'
equity related to SFAS 133, approximately $200,000 of which represented the
cumulative effect of adopting at January 1, 2001.
NOTE 3
At July 1, 2001, 5,758,533 shares of common stock were reserved for
issuance under the company's stock compensation plans.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4
Inventories consisted of the following:
<Table>
<Caption>
JULY 1, DEC. 31,
2001 2000
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Raw materials............................................... $134,456 $108,808
Work-in-process............................................. 44,000 36,065
Finished goods.............................................. 125,639 114,972
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$304,095 $259,845
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</Table>
NOTE 5
BUSINESS SEGMENT INFORMATION:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
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JULY 1, JUNE 25, PERCENT JULY 1, JUNE 25, PERCENT
2001 2000 CHANGE 2001 2000 CHANGE
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Sales
Commercial......... $246,598 $241,398 2% $469,416 $460,214 2%
Medical............ 107,366 105,376 2% 213,770 200,882 6%
Aerospace.......... 149,040 118,779 25% 290,552 232,047 25%
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Total.............. $503,004 $465,553 8% $973,738 $893,143 9%
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Operating profit
Commercial......... $ 25,898 $ 26,273 (1%) $ 50,256 $ 50,761 (1%)
Medical............ 15,516 14,839 5% 30,449 27,048 13%
Aerospace.......... 16,090 12,457 29% 32,179 25,138 28%
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57,504 53,569 7% 112,884 102,947 10%
Less:
Interest expense... 7,378 5,427 36% 14,089 10,461 35%
Corporate
expenses........ 4,649 4,570 2% 9,293 8,952 4%
-------- -------- -------- --------
Income before
taxes.............. 45,477 43,572 4% 89,502 83,534 7%
Taxes on income.... 14,416 14,248 1% 28,460 27,396 4%
-------- -------- -------- --------
Net income......... $ 31,061 $ 29,324 6% $ 61,042 $ 56,138 9%
======== ======== ======== ========
</Table>
MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA
RESULTS OF OPERATIONS:
Revenues increased 8% in the second quarter of 2001 to $503.0 million from
$465.6 million in 2000. Despite weaker currencies, each segment posted gains,
with overall sales growth principally a result of acquisitions. The Commercial,
Medical and Aerospace segments comprised 49%, 21% and 30% of the company's net
sales, respectively.
The gross profit margin decreased slightly to 28.5% in 2001 compared with
28.7% in 2000. The decrease was due to an improvement in Aerospace that was more
than offset by declines in Medical and Commercial. Operating expenses as a
percentage of sales decreased to 18.0% in 2001 compared with 18.2% in 2000
resulting primarily from a decrease in Aerospace and Medical, which offset an
increase in the Commercial Segment.
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Operating profit increased 7% in the second quarter from $53.6 million in
2000 to $57.5 million in 2001 resulting from gains in the Aerospace and Medical
segments, which compensated for a decline in the Commercial Segment. Operating
margin dropped slightly to 11.4% in 2001 versus 11.5% in 2000. The Commercial,
Medical and Aerospace segments comprised 45%, 27% and 28% of the company's
operating profit, respectively.
Interest expense increased in 2001 from borrowings incurred to finance
acquisitions. The effective income tax rate was 31.7% in 2001 compared with
32.7% in 2000. The decline resulted from a higher proportion of income in 2001
earned in countries with relatively lower tax rates. Net income and diluted
earnings per share for the quarter were $31.1 million and $0.79, which represent
increases of 6% and 4%, respectively.
INDUSTRY SEGMENT REVIEW:
Sales in the Commercial Segment increased 2% from $241.4 million in 2000 to
$246.6 million in 2001 resulting from acquisitions, which offset a decline in
core sales. Marine sales increased as a result of the February 2001 Morse
Controls acquisition, which offset a decline in core sales from the softer
marine market. Industrial sales increased from the acquisition of an alternative
fuel component supplier and additional sales of light-duty cables which offset
lower market demand. The continuing decline in North American vehicle production
resulted in lower Automotive product line sales. Operating profit declined from
$26.3 million in 2000 to $25.9 million in 2001 and operating margin was lower. A
decline in Automotive operating profit from the lower volume offset increases in
both Marine and Industrial. Operating margin was lower primarily from the
decline in Automotive sales and from expenses relating to new products in
Marine.
Medical Segment sales increased 2% from $105.4 million in 2000 to $107.4
million in 2001 due primarily to core growth in both the Hospital Supply and
Surgical Devices product lines. Core business gained on the introduction of new
products in both groups. Weaker European currencies continued to lower top line
results, particularly in the Hospital Supply product line. Operating profit
increased 5% from $14.8 million in 2000 to $15.5 million in 2001, while
operating margin increased to 14.5% in 2001 from 14.1% in 2000 resulting from
improved product mix.
Aerospace Segment sales increased 25% from $118.8 million in 2000 to $149.0
million in 2001. Double-digit growth in cargo systems, industrial gas turbine
and repair services more than compensated for a single digit decline in
manufactured components. Growth was split equally between core products and
acquisitions. Operating profit increased 29% as quarter-over-quarter
improvements at cargo handling, industrial gas turbine and repair services
offset a decline in manufactured components. Operating margin improved from
10.5% in 2000 to 10.8% in 2001 primarily from increased sales of higher margin
repair services.
CASH FLOWS FROM OPERATIONS AND LIQUIDITY:
Increased activity in the more working capital intensive Aerospace Segment,
relative to the Commercial Segment, resulted in a decrease of $35.1 million in
cash flow from operations to $54.7 million year to date. Long-term borrowings
increased to $285.0 million at July 1, 2001 as compared with $220.6 million at
December 31, 2000 largely due to borrowings incurred to finance the Morse
Controls acquisition. As a result, the ratio of long-term borrowings to total
capitalization increased to 28% on July 1, 2001 from 24% on December 31, 2000.
FORWARD-LOOKING STATEMENTS:
This quarterly report includes the company's current plans and expectations
and is based on information available to the company. It relies on a number of
assumptions and estimates which could be inaccurate and which are subject to
risks and uncertainties.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Reports on form 8-K.
No reports on form 8-K were filed during the quarter.
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TELEFLEX INCORPORATED
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
/s/ HAROLD L. ZUBER, JR.
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Harold L. Zuber, Jr.
Executive Vice President and Chief
Financial Officer
/s/ STEPHEN J. GAMBONE
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Stephen J. Gambone
Controller and Chief
Accounting Officer
August 2, 2001
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