- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 MARCH 31, 2002 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 MARCH 31, 2002 ----------------------------- ----------------------------- <S> <C> Common Stock, $1.00 Par Value 39,147,949 </Table> - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
TELEFLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) <Table> <Caption> MAR. 31, DEC. 30, 2002 2001 ---------- ---------- <S> <C> <C> ASSETS Current assets Cash and cash equivalents................................. $ 51,817 $ 46,900 Accounts receivable less allowance for doubtful accounts............................................... 394,773 363,674 Inventories............................................... 321,908 308,775 Prepaid expenses.......................................... 29,155 28,128 ---------- ---------- 797,653 747,477 Property, plant and equipment, at cost, less accumulated depreciation.............................................. 563,615 565,695 Goodwill.................................................... 234,524 223,911 Intangibles and other assets................................ 61,988 56,444 Investments in affiliates................................... 42,083 41,493 ---------- ---------- $1,699,863 $1,635,020 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of borrowings and demand loans............ $ 231,021 $ 212,122 Accounts payable and accrued expenses..................... 270,664 251,805 Income taxes payable...................................... 36,909 31,499 ---------- ---------- 538,594 495,426 Long-term borrowings........................................ 217,294 228,180 Deferred income taxes and other............................. 137,331 133,271 ---------- ---------- 893,219 856,877 Shareholders' equity........................................ 806,644 778,143 ---------- ---------- $1,699,863 $1,635,020 ========== ========== </Table> 2
TELEFLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF INCOME (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE) <Table> <Caption> THREE MONTHS ENDED -------------------- MAR. 31, APR. 1, 2002 2001 -------- -------- <S> <C> <C> Revenues.................................................... $508,396 $470,734 -------- -------- Cost of sales............................................... 373,290 335,501 Operating expenses.......................................... 85,176 84,497 Interest expense............................................ 6,036 6,711 -------- -------- 464,502 426,709 -------- -------- Income before taxes......................................... 43,894 44,025 Provision for taxes on income............................... 13,476 14,044 -------- -------- Net income.................................................. $ 30,418 $ 29,981 ======== ======== Earnings per share Basic..................................................... $ 0.78 $ 0.78 Diluted................................................... $ 0.77 $ 0.77 Dividends per share......................................... $ 0.170 $ 0.150 Average number of common and common equivalent shares outstanding Basic..................................................... 39,038 38,497 Diluted................................................... 39,638 39,036 </Table> 3
TELEFLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) <Table> <Caption> THREE MONTHS ENDED --------------------- MAR. 31, APR. 1, 2002 2001 -------- --------- <S> <C> <C> Cash flows from operating activities: Net income................................................ $ 30,418 $ 29,981 Adjustments to reconcile net income to cash flows from operating activities: Depreciation expense................................... 20,455 16,680 Amortization expense................................... 1,260 4,410 (Increase) in accounts receivable...................... (21,136) (31,273) (Increase) in inventory................................ (10,618) (13,304) (Increase) in prepaid expenses......................... (2,280) (2,154) Increase in accounts payable and accrued expenses...... 6,033 3,249 Increase in income taxes payable....................... 4,168 3,590 -------- --------- 28,300 11,179 -------- --------- Cash flows from financing activities: Proceeds from new borrowings.............................. -- 97,241 Reduction in long-term borrowings......................... (9,933) (2,264) Increase in current borrowings and demand loans........... 21,481 59,462 Proceeds from stock compensation plans.................... 5,951 4,147 Dividends................................................. (6,627) (5,775) -------- --------- 10,872 152,811 -------- --------- Cash flows from investing activities: Expenditures for plant assets............................. (22,523) (22,433) Payments for businesses acquired.......................... (9,742) (142,590) Investments in affiliates................................. (42) 796 Other..................................................... (1,948) (2,518) -------- --------- (34,255) (166,745) -------- --------- Net increase (decrease) in cash and cash equivalents........ 4,917 (2,755) Cash and cash equivalents at the beginning of the period.... 46,900 45,139 -------- --------- Cash and cash equivalents at the end of the period.......... $ 51,817 $ 42,384 ======== ========= </Table> 4
TELEFLEX INCORPORATED STATEMENT OF COMPREHENSIVE INCOME <Table> <Caption> THREE MONTHS ENDED ------------------- MAR. 31, APR. 1, 2002 2001 -------- ------- <S> <C> <C> Net income.................................................. $30,418 $29,981 Financial instruments marked to market...................... 513 (3,916) Cumulative translation adjustment........................... (2,726) (7,793) ------- ------- Comprehensive income........................................ $28,205 $18,272 ======= ======= </Table> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2002 and April 1, 2001 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. At March 31, 2002, 5,517,445 shares of common stock were reserved for issuance under the company's stock compensation plans. NOTE 2 As of December 31, 2001, the company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS 142) which requires goodwill no longer be amortized, but tested for impairment. The company did not record an impairment loss for its goodwill at adoption of SFAS 142. In accordance with SFAS 142, the company discontinued the amortization of goodwill effective December 31, 2001. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows: <Table> <Caption> THREE MONTHS ENDED ------------------- MAR. 31, APR. 1, 2002 2001 -------- ------- <S> <C> <C> Reported net income......................................... $30,418 $29,981 Add: Goodwill amortization, net of tax...................... -- 2,368 ------- ------- Adjusted net income......................................... $30,418 $32,349 ======= ======= Basic earnings per share.................................... $ .78 $ .78 Add: Goodwill amortization, net of tax per basic share...... -- .06 ------- ------- Adjusted basic earnings per share........................... $ .78 $ .84 ======= ======= Diluted earnings per share.................................. $ .77 $ .77 Add: Goodwill amortization, net of tax per diluted share.... -- .06 ------- ------- Adjusted diluted earnings per share......................... $ .77 $ .83 ======= ======= </Table> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- (CONTINUED) Changes in the carrying amount of goodwill for the three months ended March 31, 2002, by operating segment, are as follows: <Table> <Caption> COMMERCIAL MEDICAL AEROSPACE TOTAL ---------- -------- --------- -------- <S> <C> <C> <C> <C> Goodwill, net at December 30, 2001... $79,048 $120,551 $24,312 $223,911 Goodwill acquired.................... 4,993 5,620 -- 10,613 ------- -------- ------- -------- Goodwill, net at March 31, 2002...... $84,041 $126,171 $24,312 $234,524 ======= ======== ======= ======== </Table> The following table reflects the components of other intangible assets as of March 31, 2002 which continue being amortized: <Table> <Caption> GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION -------------- ------------ <S> <C> <C> Intellectual property............... $21,230 $ 4,135 Customer lists...................... 21,000 1,055 Distribution rights................. 14,707 4,136 </Table> Amortization expense related to those intangible assets was $1.3 million for the quarter ended March 31, 2002. Estimated annual amortization expense for each of the five succeeding years is as follows: <Table> <S> <C> 2002................................ $ 5,059 2003................................ 5,013 2004................................ 4,598 2005................................ 4,248 2006................................ 3,999 </Table> NOTE 3 Inventories consisted of the following: <Table> <Caption> MAR. 31, DEC. 30, 2002 2001 -------------- ----------- <S> <C> <C> Raw materials....................... $144,476 $133,364 Work-in-process..................... 55,127 44,530 Finished goods...................... 122,305 130,881 -------- -------- $321,908 $308,775 ======== ======== </Table> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 BUSINESS SEGMENT INFORMATION: <Table> <Caption> THREE MONTHS ENDED -------------------- MAR. 31, APR. 1, PERCENT 2002 2001 CHANGE -------- -------- ------- <S> <C> <C> <C> Sales Commercial.......................................... $265,752 $222,818 19% Medical............................................. 107,303 106,404 1% Aerospace........................................... 135,341 141,512 (4%) -------- -------- Total............................................... $508,396 $470,734 8% ======== ======== Operating Profit Commercial.......................................... $ 25,704 $ 25,070 3% Medical............................................. 17,367 17,075 2% Aerospace........................................... 11,429 16,435 (30%) -------- -------- 54,500 58,580* (7%) -------- -------- Less: Interest expense.................................... 6,036 6,711 (10%) Corporate expenses.................................. 4,570 4,644 (2%) Goodwill amortization expense....................... -- 3,200* -- -------- -------- Income before taxes................................... 43,894 44,025 -- Taxes on income....................................... 13,476 14,044 (4%) -------- -------- Net income............................................ $ 30,418 $ 29,981 1% ======== ======== </Table> - --------------- * Goodwill amortization in 2001 has been reclassified from operating profit to a corporate expense item to facilitate comparison with the current period's results. In addition, references to prior year operating profit and margin in Management's Analysis of Quarterly Financial Data, contained on pages 7 and 8 herein, are based on the reclassified amounts. MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA RESULTS OF OPERATIONS: Revenues increased 8% in the first quarter of 2002 to $508.4 million from $470.7 million in 2001. The increase resulted from gains in the Commercial and Medical segments offsetting a decline in the Aerospace Segment. Growth was the result of core products and acquisitions offset by weaker currencies. The Commercial, Medical and Aerospace segments comprised 52%, 21% and 27% of the company's net sales, respectively. The gross profit margin declined from 28.7% in 2001 to 26.6% in 2002 as the Commercial and Aerospace segments were lower while Medical was relatively unchanged. Operating expenses as a percentage of sales decreased to 16.8% in 2002 compared with 18.0% in 2001 resulting primarily from a reduction in the Commercial and Medical segments offsetting an increase in Aerospace. In addition, operating expenses in 2002 exclude the amortization of goodwill in accordance with SFAS 142. Operating profit declined 7% in the first quarter to $54.5 million in 2002 from $58.6 million in 2001 resulting from gains in Commercial and Medical which were more than offset by a decline in Aerospace. Operating margin declined from 12.4% in 2001 to 10.7% in 2002 as a result of declines in the Commercial and 7
Aerospace segments. The Commercial, Medical and Aerospace segments comprised 47%, 32% and 21% of the company's operating profit, respectively. Net income and diluted earnings per share for the quarter were $30.4 million and $0.77. Excluding goodwill amortization in the first quarter of 2001, net income and diluted earnings per share declined 6% and 7%, respectively. Interest expense declined in 2002 as a result of a reduction in the average debt outstanding and lower interest rates. The effective income tax rate was 30.7% in 2002 compared with 31.9% in 2001. The decline resulted from the impact of SFAS 142 adoption in 2002 and a higher proportion of income in 2002 earned in countries with relatively lower tax rates. INDUSTRY SEGMENT REVIEW: For comparative purposes 2001 goodwill amortization expense of $3.2 million (Commercial -- $.7 million, Medical -- $2.1 million, Aerospace -- $.4 million) has been reclassified from operating profit to a corporate expense item. Discussion of operating profit and margin below reflects the reclassified amounts. Sales in the Commercial Segment gained 19% from $222.8 million in 2001 to $265.8 million in 2002 as all three product lines, Automotive, Marine and Industrial, reported double-digit gains. Acquisitions accounted for more than two-thirds of this segment's sales growth and nearly all of the operating profit improvement. Operating profit increased to $25.7 million from $25.1 million in 2001. Operating margin declined from 11.3% in 2001 to 9.7% in 2002 as a result of pricing pressures in the North American automotive market and a lower contribution from recently acquired companies. Medical Segment sales increased 1% from $106.4 million in 2001 to $107.3 million in 2002. Core product improvements in the Hospital Supply product line accounted for all of the growth, as Surgical Devices sales remained essentially constant. Operating profit increased from $17.1 million in 2001 to $17.4 million in 2002 and operating margin improved slightly from 16.0% to 16.2% as this Segment continues to target a smaller line of more profitable products. Aerospace Segment sales decreased 4% to $135.3 million in 2002 from $141.5 million in 2001 primarily from a decline in cargo handling systems, repair services and manufactured components, which offset a gain in industrial gas turbine (IGT) services. Operating profit decreased 30% and operating margin dropped from 11.6% in 2001 to 8.4% in 2002. Operating profit and margin declined as a result of the lower sales, start up costs related to a new manufactured components facility in Mexico, and less favorable product mix in the IGT product line. CASH FLOWS FROM OPERATIONS AND LIQUIDITY: For the first quarter of 2002, cash flows from operating activities more than doubled to $28.3 million from $11.2 million during the quarter ended April 1, 2001. The improvement relative to last year was a result of reduced working capital levels, particularly for accounts receivable and inventories. Total borrowings increased by $8 million to $448.3 million at March 31, 2002 as compared to $440.3 million at December 30, 2001. The increase was due to borrowings incurred to finance acquisitions offset by declines from currency exchange rate changes and repayments. The ratio of total debt to total capitalization at both December 30, 2001 and March 31, 2002 was 36%. 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. 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. 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 14, 2002 10