1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ 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 APRIL 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> <S> <C> DELAWARE 23-1147939 ------------------- --------------------------------- (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER) 630 WEST GERMANTOWN PIKE, SUITE 450 PLYMOUTH MEETING, PA 19462 ------------------------------------------ ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) </TABLE> (610) 834-6301 ------------------------------------ (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. [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 APRIL 1, 2001 - ---------------------------------------------- ---------------------------- <S> <C> Common Stock, $1.00 Par Value 38,537,337 </TABLE> - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 TELEFLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> APR. 1, DEC. 31, 2001 2000 ---------- ---------- <S> <C> <C> ASSETS Current assets Cash and cash equivalents................................. $ 42,384 $ 45,139 Accounts receivable less allowance for doubtful accounts............................................... 387,825 334,346 Inventories............................................... 302,872 259,845 Prepaid expenses.......................................... 25,230 22,708 ---------- ---------- 758,311 662,038 Property, plant and equipment, at cost, less accumulated depreciation.............................................. 510,031 489,503 Investments in affiliates................................... 39,886 39,515 Intangibles and other assets................................ 290,983 210,232 ---------- ---------- $1,599,211 $1,401,288 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of borrowings and demand loans............ $ 175,946 $ 118,037 Accounts payable and accrued expenses..................... 255,461 235,704 Income taxes payable...................................... 35,091 30,131 ---------- ---------- 466,498 383,872 Long-term borrowings........................................ 308,853 220,557 Deferred income taxes and other............................. 114,498 106,437 ---------- ---------- 889,849 710,866 Shareholders' equity........................................ 709,362 690,422 ---------- ---------- $1,599,211 $1,401,288 ========== ========== </TABLE> 2
3 TELEFLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF INCOME (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE) <TABLE> <CAPTION> THREE MONTHS ENDED -------------------- APR. 1, MAR. 26, 2001 2000 -------- -------- <S> <C> <C> Revenues.................................................... $470,734 $427,590 -------- -------- Cost of sales............................................... 335,501 306,178 Operating expenses.......................................... 84,497 76,416 Interest expense............................................ 6,711 5,034 -------- -------- 426,709 387,628 -------- -------- Income before taxes......................................... 44,025 39,962 Provision for taxes on income............................... 14,044 13,148 -------- -------- Net income.................................................. $ 29,981 $ 26,814 ======== ======== Earnings per share Basic..................................................... $ 0.78 $ 0.70 Diluted................................................... $ 0.77 $ 0.70 Dividends per share......................................... $ 0.150 $ 0.130 Average number of common and common equivalent shares outstanding Basic..................................................... 38,497 38,096 Diluted................................................... 39,036 38,415 </TABLE> 3
4 TELEFLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED --------------------- APR. 1, MAR. 26, 2001 2000 --------- -------- <S> <C> <C> Cash flows from operating activities: Net income................................................ $ 29,981 $26,814 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization.......................... 21,090 18,091 (Increase) in accounts receivable...................... (31,273) (25,090) (Increase) in inventory................................ (13,304) (4,550) (Increase) decrease in prepaid expenses................ (2,154) 1,761 Increase in accounts payable and accrued expenses...... 3,249 14,918 Increase in income taxes payable....................... 3,590 4,716 --------- ------- 11,179 36,660 --------- ------- Cash flows from financing activities: Proceeds from new borrowings.............................. 97,241 28,000 Reduction in long-term borrowings......................... (2,264) (2,236) Increase in current borrowings and demand loans........... 59,462 13,642 Proceeds from stock compensation plans.................... 4,147 1,258 Dividends................................................. (5,775) (4,835) --------- ------- 152,811 35,829 --------- ------- Cash flows from investing activities: Expenditures for plant assets............................. (22,433) (19,793) Payments for businesses acquired.......................... (142,590) (48,548) Investments in affiliates................................. 796 191 Other..................................................... (2,518) 2,155 --------- ------- (166,745) (65,995) --------- ------- Net (decrease) increase in cash and cash equivalents........ (2,755) 6,494 Cash and cash equivalents at the beginning of the period.... 45,139 29,040 --------- ------- Cash and cash equivalents at the end of the period.......... $ 42,384 $35,534 ========= ======= </TABLE> 4
5 TELEFLEX INCORPORATED STATEMENT OF COMPREHENSIVE INCOME <TABLE> <CAPTION> THREE MONTHS ENDED ------------------- APR. 1, MAR. 26, 2001 2000 ------- -------- <S> <C> <C> Net income.................................................. $29,981 $26,814 Unrealized holding gain..................................... -- 235 Financial instruments marked to market...................... (3,916) -- Cumulative translation adjustment........................... (7,793) (3,915) ------- ------- Comprehensive income........................................ $18,272 $23,134 ======= ======= </TABLE> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 The accompanying unaudited condensed consolidated financial statements for the three months ended April 1, 2001 and March 26, 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 April 1, 2001, the Company recognized a $3.9 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 April 1, 2001, 5,890,788 shares of common stock were reserved for issuance under the Company's stock compensation plans. 5
6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 Inventories consisted of the following: <TABLE> <CAPTION> APR. 1, DEC. 31, 2001 2000 -------- -------- <S> <C> <C> Raw materials............................................... $132,914 $108,808 Work-in-process............................................. 45,433 36,065 Finished goods.............................................. 124,525 114,972 -------- -------- $302,872 $259,845 ======== ======== </TABLE> NOTE 5 BUSINESS SEGMENT INFORMATION: <TABLE> <CAPTION> THREE MONTHS ENDED -------------------- APR. 1, MAR. 26, PERCENT 2001 2000 CHANGE -------- -------- ------- <S> <C> <C> <C> Sales Commercial.......................................... $222,818 $218,816 2% Medical............................................. 106,404 95,506 11% Aerospace........................................... 141,512 113,268 25% -------- -------- Total............................................... $470,734 $427,590 10% ======== ======== Operating Profit Commercial.......................................... $ 24,358 $ 24,488 (1%) Medical............................................. 14,933 12,209 22% Aerospace........................................... 16,089 12,681 27% -------- -------- 55,380 49,378 12% -------- -------- Less: Interest expense.................................... 6,711 5,034 33% Corporate expenses.................................. 4,644 4,382 6% -------- -------- Income before taxes................................... 44,025 39,962 10% Taxes on income..................................... 14,044 13,148 7% -------- -------- Net income.......................................... $ 29,981 $ 26,814 12% ======== ======== </TABLE> MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA RESULTS OF OPERATIONS: Revenues increased 10% in the first quarter of 2001 to $470.7 million from $427.6 million in 2000. The increase resulted from gains in all three segments, Commercial, Medical and Aerospace. A majority of the sales gain can be attributed to acquisitions, which were spread out among all three segments. The Commercial, Medical and Aerospace segments comprised 47%, 23% and 30% of the company's net sales, respectively. The gross profit margin increased to 28.7% in 2001 compared with 28.4% in 2000. The increase was due to higher gross profit margin in the Commercial and Medical segments offsetting a decline in the Aerospace segment. Operating expenses as a percentage of sales increased slightly to 18.0% in 2001 compared with 17.9% in 2000 resulting from an increase in Commercial offsetting reductions in Medical and Aerospace. 6
7 Operating profit increased 12% in the first quarter from $49.4 million in 2000 to $55.4 million in 2001 resulting from gains in Medical and Aerospace offset by a slight decline in Commercial. Operating margin increased from 11.5% in 2000 to 11.8% in 2001 as a result of increases in the Medical and Aerospace segments. The Commercial, Medical and Aerospace segments comprised 44%, 27% and 29% of the company's operating profit, respectively. Net income and diluted earnings per share for the quarter were $30.0 million and $0.77, which represent increases of 12% and 10%, respectively. Interest expense increased in 2001 as a result of an increase in average debt, principally from the first quarter acquisition of Morse Controls. The effective income tax rate was 31.9% in 2001 compared with 32.9% in 2000. The decline resulted from a higher proportion of income in 2001 earned in countries with relatively lower tax rates. INDUSTRY SEGMENT REVIEW: Sales in the Commercial Segment gained 2% from $218.8 million in 2000 to $222.8 million in 2001 due to increases in the Marine and Industrial product lines while Automotive sales declined. Marine revenues increased as a result of the Morse Controls acquisition while Industrial sales improved in part on additional market penetration in the light duty cable market. Weaker domestic vehicle production adversely affected Automotive sales. Operating profit declined 1% from $24.5 million in 2000 to $24.4 million as a result of reduced volumes in the domestic automotive market and marine product development spending. The Medical Segment sales increased 11% to $106.4 million in 2001 from gains in both the Hospital Supply and Surgical Devices product lines. Acquisitions in the Hospital Supply product line and core growth within the closure business of the Surgical Devices product line helped raise operating profit 22% from $12.2 million to $14.9 million. Operating margin improved to 14.0% from 12.8% resulting from increased sales of higher margin products. The Aerospace Segment sales increased 25% from $113.3 million in 2000 to $141.5 million in 2001 as an increase in cargo systems, industrial gas turbine services and repair services more than compensated for a decline in manufactured components. Operating profit increased 27% to $16.1 million and operating margin improved from 11.2% in 2000 to 11.4% in 2001 as increases in cargo systems, industrial gas turbine services and repair services offset a decline in manufactured components. CASH FLOWS FROM OPERATIONS AND LIQUIDITY: Cash flows from operating activities decreased $25.5 million to $11.2 million during the quarter ended April 1, 2001, due to increased working capital levels partially related to the Morse Controls business. Long-term borrowings increased by $88.3 million to $308.9 million at April 1, 2001 as compared to $220.6 million at December 31, 2000. The increase was due to borrowings incurred to finance acquisitions, primarily Morse Controls. This increase in long-term borrowings resulted in an increase in the ratio of long-term borrowings to total capitalization from 24% at December 31, 2000 to 30% at April 1, 2001. FORWARD-LOOKING STATEMENTS: This quarterly report includes the company's current plans and expectations and is based on information available to it. It relies on a number of assumptions and estimates which could be inaccurate and which are subject to risks and uncertainties. 7
8 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
9 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 -------------------------------------- Stephen J. Gambone Controller and Chief Accounting Officer May 16, 2001 9