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 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> <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 JULY 1, 2001 - ---------------------------------------------- --------------------------- <S> <C> Common Stock, $1.00 Par Value 38,809,143 </Table> - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 TELEFLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) <Table> <Caption> JULY 1, DEC. 31, 2001 2000 ---------- ---------- <S> <C> <C> 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 ---------- ---------- 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 ---------- ---------- $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 ---------- ---------- 461,677 383,872 Long-term borrowings........................................ 284,966 220,557 Deferred income taxes and other............................. 117,485 106,437 ---------- ---------- 864,128 710,866 Shareholders' equity........................................ 739,224 690,422 ---------- ---------- $1,603,352 $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 SIX MONTHS ENDED -------------------- -------------------- JULY 1, JUNE 25, JULY 1, JUNE 25, 2001 2000 2001 2000 -------- -------- -------- -------- <S> <C> <C> <C> <C> 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> 3
4 TELEFLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) <Table> <Caption> SIX MONTHS ENDED ---------------------- JULY 1, JUNE 25, 2001 2000 --------- --------- <S> <C> <C> 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 --------- --------- 54,686 89,809 --------- --------- 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) --------- --------- 147,662 12,793 --------- --------- 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) --------- --------- (200,218) (110,641) --------- --------- 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 --------- --------- Cash and cash equivalents at the end of the period.......... $ 47,269 $ 21,001 ========= ========= </Table> 4
5 TELEFLEX INCORPORATED STATEMENT OF COMPREHENSIVE INCOME <Table> <Caption> THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ------------------- JULY 1, JUNE 25, JULY 1, JUNE 25, 2001 2000 2001 2000 ------- -------- ------- -------- <S> <C> <C> <C> <C> 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. 5
6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 Inventories consisted of the following: <Table> <Caption> JULY 1, DEC. 31, 2001 2000 -------- -------- <S> <C> <C> Raw materials............................................... $134,456 $108,808 Work-in-process............................................. 44,000 36,065 Finished goods.............................................. 125,639 114,972 -------- -------- $304,095 $259,845 ======== ======== </Table> NOTE 5 BUSINESS SEGMENT INFORMATION: <Table> <Caption> THREE MONTHS ENDED SIX MONTHS ENDED -------------------- -------------------- JULY 1, JUNE 25, PERCENT JULY 1, JUNE 25, PERCENT 2001 2000 CHANGE 2001 2000 CHANGE -------- -------- ------- -------- -------- ------- <S> <C> <C> <C> <C> <C> <C> 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% -------- -------- -------- -------- Total.............. $503,004 $465,553 8% $973,738 $893,143 9% ======== ======== ======== ======== 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% -------- -------- -------- -------- 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. 6
7 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. 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 August 2, 2001 9
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