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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 SEPTEMBER 30, 2001
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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 SEPTEMBER 30, 2001
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Common Stock, $1.00 Par Value 38,865,748
</Table>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
SEPT. 30, DEC. 31,
2001 2000
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ASSETS
Current assets
Cash and cash equivalents................................. $ 44,581 $ 45,139
Accounts receivable less allowance for doubtful
accounts............................................... 386,355 334,346
Inventories............................................... 315,546 259,845
Prepaid expenses.......................................... 31,322 22,708
---------- ----------
777,804 662,038
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 554,155 489,503
Investments in affiliates................................... 41,040 39,515
Intangibles and other assets................................ 283,973 210,232
---------- ----------
$1,656,972 $1,401,288
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of borrowings and demand loans............ $ 218,596 $ 118,037
Accounts payable and accrued expenses..................... 258,282 235,704
Income taxes payable...................................... 37,969 30,131
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514,847 383,872
Long-term borrowings........................................ 261,622 220,557
Deferred income taxes and other............................. 121,827 106,437
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898,296 710,866
Shareholders' equity........................................ 758,676 690,422
---------- ----------
$1,656,972 $1,401,288
========== ==========
</Table>
2
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ------------------------
SEPT. 30, SEPT. 24, SEPT. 30, SEPT. 24,
2001 2000 2001 2000
--------- --------- ---------- ----------
Revenues..................................... $466,014 $420,405 $1,439,752 $1,313,548
-------- -------- ---------- ----------
Cost of sales................................ 337,422 306,069 1,032,392 944,087
Operating expenses........................... 89,064 76,946 264,241 238,076
Interest expense............................. 7,263 5,209 21,352 15,670
-------- -------- ---------- ----------
433,749 388,224 1,317,985 1,197,833
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Income before taxes.......................... 32,265 32,181 121,767 115,715
Provision for taxes on income................ 10,163 10,459 38,623 37,855
-------- -------- ---------- ----------
Net income................................... $ 22,102 $ 21,722 $ 83,144 $ 77,860
======== ======== ========== ==========
Earnings per share
Basic...................................... $ 0.57 $ 0.57 $ 2.15 $ 2.04
Diluted.................................... $ 0.56 $ 0.56 $ 2.12 $ 2.02
Dividends per share.......................... $ 0.170 $ 0.150 $ 0.490 $ 0.430
Average number of common and common
equivalent shares outstanding
Basic...................................... 38,847 38,240 38,700 38,172
Diluted.................................... 39,379 38,714 39,258 38,584
</Table>
3
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
NINE MONTHS ENDED
----------------------
SEPT. 30, SEPT. 24,
2001 2000
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Cash flows from operating activities:
Net income................................................ $ 83,144 $ 77,860
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization.......................... 68,095 57,181
(Increase) in accounts receivable...................... (15,872) (6,507)
(Increase) in inventory................................ (17,025) (13,149)
(Increase) in prepaid expenses......................... (7,921) (2,600)
(Decrease) increase in accounts payable and accrued
expenses.............................................. (7,121) 14,839
Increase in income taxes payable....................... 6,214 7,907
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109,514 135,531
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Cash flows from financing activities:
Proceeds from new borrowings.............................. 81,847 33,771
Reduction in long-term borrowings......................... (20,253) (30,669)
Increase in current borrowings and demand loans........... 80,675 14,186
Proceeds from stock compensation plans.................... 7,655 3,576
Dividends................................................. (18,972) (16,422)
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130,952 4,442
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Cash flows from investing activities:
Expenditures for plant assets............................. (73,300) (60,374)
Payments for businesses acquired.......................... (167,772) (75,811)
Proceeds from sale of investment.......................... -- 9,564
Investments in affiliates................................. 543 (3,080)
Other..................................................... (495) 2,347
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(241,024) (127,354)
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Net (decrease) increase in cash and cash equivalents........ (558) 12,619
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.......... $ 44,581 $ 41,659
========= =========
</Table>
4
TELEFLEX INCORPORATED
STATEMENT OF COMPREHENSIVE INCOME
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
SEPT. 30, SEPT. 24, SEPT. 30, SEPT. 24,
2001 2000 2001 2000
--------- --------- --------- ---------
Net income......................................... $22,102 $21,722 $83,144 $ 77,860
Unrealized holding gain............................ -- 4,377 -- 5,617
Reclassification for gain included in net income... -- (1,031) -- (1,031)
Financial instruments marked to market............. 297 -- (2,026) --
Cumulative translation adjustment.................. 1,456 (6,375) (8,907) (14,250)
------- ------- ------- --------
Comprehensive income............................... $23,855 $18,693 $72,211 $ 68,196
======= ======= ======= ========
</Table>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements for
the three months and nine months ended September 30, 2001 and September 24, 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
September 30, 2001, the Company recognized a net $2.0 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
On June 30, 2001 the Financial Accounting Standards Board approved
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires all business combinations entered into subsequent to June 30,
2001, to be accounted for using the purchase method of accounting. Effective in
the first quarter of 2002, SFAS No. 142 requires that goodwill and other
intangible assets with indefinite lives no longer be amortized but instead be
tested for impairment on an annual basis. While the company is still analyzing
the effect of SFAS No. 142 on the financial statements, a preliminary estimate
of the annual amortization of goodwill and indefinite-lived intangible assets
that will cease in 2002 is approximately $15 million.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4
At September 30, 2001, 5,735,108 shares of common stock were reserved for
issuance under the company's stock compensation plans.
NOTE 5
Inventories consisted of the following:
<Table>
<Caption>
SEPT. 30, DEC. 31,
2001 2000
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Raw materials............................................... $146,005 $108,808
Work-in-process............................................. 43,176 36,065
Finished goods.............................................. 126,365 114,972
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$315,546 $259,845
======== ========
</Table>
NOTE 6
BUSINESS SEGMENT INFORMATION:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- -----------------------
SEPT. 30, SEPT. 24, PERCENT SEPT. 30, SEPT 24, PERCENT
2001 2000 CHANGE 2001 2000 CHANGE
--------- --------- ------- ---------- ---------- -------
Sales
Commercial.............. $218,253 $194,178 12% $ 687,669 $ 654,392 5%
Medical................. 104,537 104,418 -- 318,307 305,300 4%
Aerospace............... 143,224 121,809 18% 433,776 353,856 23%
-------- -------- ---------- ----------
Total................... $466,014 $420,405 11% $1,439,752 $1,313,548 10%
======== ======== ========== ==========
Operating profit
Commercial.............. $ 14,048 $ 14,363 (2%) $ 64,304 $ 65,124 (1%)
Medical................. 15,238 14,148 8% 45,687 41,196 11%
Aerospace............... 15,049 12,851 17% 47,228 37,989 24%
-------- -------- ---------- ----------
44,335 41,362 7% 157,219 144,309 9%
-------- -------- ---------- ----------
Less:
Interest expense........ 7,263 5,209 39% 21,352 15,670 36%
Corporate expenses...... 4,807 3,972 21% 14,100 12,924 9%
-------- -------- ---------- ----------
Income before taxes....... 32,265 32,181 -- 121,767 115,715 5%
Taxes on income......... 10,163 10,459 (3%) 38,623 37,855 2%
-------- -------- ---------- ----------
Net income.............. $ 22,102 $ 21,722 2% $ 83,144 $ 77,860 7%
======== ======== ========== ==========
</Table>
MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA
RESULTS OF OPERATIONS:
Revenues increased 11% in the third quarter of 2001 to $466.0 million from
$420.4 million in 2000. Revenues improved from acquisitions in Commercial and
from a combination of core growth and acquisitions in Aerospace. Medical sales
remained even with the third quarter of 2000. The Commercial, Medical and
Aerospace segments comprised 47%, 22% and 31% of the company's net sales,
respectively.
6
The gross profit margin improved from 27.2% in 2000 to 27.6% in 2001. The
increase was due to an improvement in all three segments. Operating expenses as
a percentage of sales increased to 19.1% in 2001 compared with 18.3% in 2000
resulting primarily from an increase in Commercial and Aerospace, which offset a
decrease in Medical.
Operating profit increased 7% in the third quarter to $44.3 million in 2001
from $41.4 million in 2000 resulting from gains in Aerospace and Medical, which
compensated for a decline in Commercial. Operating margin dropped slightly to
9.5% in 2001 versus 9.8% in 2000. The Commercial, Medical and Aerospace segments
comprised 32%, 34% and 34% of the company's operating profit, respectively.
Interest expense increased in 2001 from borrowings incurred to finance
acquisitions. The effective income tax rate was 31.5% in 2001 compared with
32.5% in 2000. The decline resulted from a higher proportion of income in 2001
earned in countries with relatively lower tax rates. Net income increased 2% to
$22.1 million, and diluted earnings per share were $0.56, equaling the third
quarter figure a year ago.
INDUSTRY SEGMENT REVIEW:
Sales in the Commercial Segment increased 12% to $218.3 million in 2001
from $194.2 million in 2000. Marine product line sales increased from the
acquisition of Morse Controls offsetting a decline in core business due to
weaker market conditions. Industrial sales increased from an acquisition of a
manufacturer of fluid handling systems and core growth in light-duty cable
products. Sales in the Automotive product line declined from the continued
decrease in North American vehicle production. Operating profit in the
Commercial Segment declined from $14.4 million in 2000 to $14.0 million in 2001
due primarily to lower Automotive sales. Operating margin declined from the
lower Automotive sales and additional spending on new products such as the
adjustable pedal.
Medical Segment sales remained unchanged for the quarter. Core sales growth
and acquisitions in the Hospital Supply product line offset a decline from
weaker currencies and the disposition of two small product lines in 2000. Sales
in Surgical Devices improved slightly, as increased sales to closure and service
markets compensated for a drop in instrument sales. Operating profit in the
quarter increased to $15.2 million in 2001 from $14.1 million in 2000 as a
result of improvements in both product lines. Operating margin increased to
14.6% from 13.5% on improved product mix and operational efficiencies.
Aerospace Segment sales increased 18% to $143.2 million in 2001 from $121.8
million in 2000. Core growth in cargo systems, repair services and industrial
gas turbine services, compensated for a decline in manufactured component sales.
The sales growth in cargo handling, repair services and industrial gas turbine
services increased operating profit 17% for the quarter. Operating margin
declined slightly, from 10.6% to 10.5% due primarily to lower volume in
manufactured components.
CASH FLOWS FROM OPERATIONS AND LIQUIDITY:
Cash flow from operations was $109.5 million for the first nine months of
2001 compared to $135.5 million in 2000. Year-over-year increases in net income
and depreciation were offset by increased working capital, particularly accounts
payable, from the timing of cash payments. Total borrowings increased to $480.2
million at September 30, 2001 as compared with $338.6 million at December 31,
2000, largely due to borrowings incurred to finance the Morse Controls
acquisition. As a result, the ratio of total borrowings to total capitalization
increased to 39% on September 30, 2001 from 33% 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.
7
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.
8
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.
--------------------------------------
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
November 12, 2001
9