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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 JUNE 30, 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)
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)
(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.
CLASS OUTSTANDING AT JUNE 30, 2002
----------------------------- ----------------------------
Common Stock, $1.00 Par Value 39,268,409
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
JUNE 30, DEC. 30,
2002 2001
---------- ----------
ASSETS
Current assets
Cash and cash equivalents................................. $ 45,762 $ 46,900
Accounts receivable less allowance for doubtful
accounts............................................... 418,162 363,674
Inventories............................................... 353,956 308,775
Prepaid expenses.......................................... 28,576 28,128
---------- ----------
846,456 747,477
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 585,290 565,695
Goodwill.................................................... 240,047 223,911
Intangibles and other assets................................ 60,214 56,444
Investments in affiliates................................... 43,860 41,493
---------- ----------
$1,775,867 $1,635,020
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of borrowings and demand loans............ $ 222,228 $ 212,122
Accounts payable and accrued expenses..................... 279,845 251,805
Income taxes payable...................................... 40,649 31,499
---------- ----------
542,722 495,426
Long-term borrowings........................................ 226,521 228,180
Deferred income taxes and other............................. 145,619 133,271
---------- ----------
914,862 856,877
Shareholders' equity........................................ 861,005 778,143
---------- ----------
$1,775,867 $1,635,020
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ----------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2002 2001 2002 2001
-------- -------- ---------- --------
Revenues...................................... $546,306 $503,004 $1,054,702 $973,738
-------- -------- ---------- --------
Cost of sales................................. 397,390 359,469 770,680 694,970
Operating expenses............................ 94,563 90,680 179,739 175,177
Interest expense.............................. 6,239 7,378 12,275 14,089
-------- -------- ---------- --------
498,192 457,527 962,694 884,236
-------- -------- ---------- --------
Income before taxes........................... 48,114 45,477 92,008 89,502
Provision for taxes on income................. 14,578 14,416 28,054 28,460
-------- -------- ---------- --------
Net income.................................... $ 33,536 $ 31,061 $ 63,954 $ 61,042
======== ======== ========== ========
Earnings per share
Basic....................................... $ 0.85 $ 0.80 $ 1.63 $ 1.58
Diluted..................................... $ 0.84 $ 0.79 $ 1.61 $ 1.56
Dividends per share........................... $ 0.180 $ 0.170 $ 0.350 $ 0.320
Average number of common and common equivalent
shares outstanding
Basic....................................... 39,241 38,755 39,140 38,626
Diluted..................................... 39,968 39,359 39,803 39,198
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
---------------------
JUNE 30, JULY 1,
2002 2001
-------- ---------
Cash flows from operating activities:
Net income................................................ $ 63,954 $ 61,042
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation expense................................... 42,286 35,251
Amortization expense................................... 2,596 8,938
(Increase) in accounts receivable...................... (26,626) (21,338)
(Increase) in inventory................................ (21,234) (15,599)
Decrease (increase) in prepaid expenses................ 428 (5,313)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 14,159 (10,561)
Increase in income taxes payable....................... 9,655 2,266
-------- ---------
85,218 54,686
-------- ---------
Cash flows from financing activities:
Proceeds from new borrowings.............................. -- 108,476
Reduction in long-term borrowings......................... (14,910) (19,026)
Increase in current borrowings and demand loans........... 2,490 63,630
Proceeds from stock compensation plans.................... 8,120 6,950
Dividends................................................. (13,690) (12,368)
-------- ---------
(17,990) 147,662
-------- ---------
Cash flows from investing activities:
Expenditures for plant assets............................. (42,687) (49,573)
Payments for businesses acquired.......................... (27,807) (149,059)
Investments in affiliates................................. (337) 806
Other..................................................... 2,465 (2,392)
-------- ---------
(68,366) (200,218)
-------- ---------
Net (decrease) increase in cash and cash equivalents........ (1,138) 2,130
Cash and cash equivalents at the beginning of the period.... 46,900 45,139
-------- ---------
Cash and cash equivalents at the end of the period.......... $ 45,762 $ 47,269
======== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
TELEFLEX INCORPORATED
STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- --------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2002 2001 2002 2001
-------- ------- -------- --------
Net income......................................... $33,536 $31,061 $63,954 $ 61,042
Financial instruments marked to market............. 1,443 1,593 1,956 (2,323)
Cumulative translation adjustment.................. 21,849 (2,570) 19,123 (10,363)
------- ------- ------- --------
Comprehensive income............................... $56,828 $30,084 $85,033 $ 48,356
======= ======= ======= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements for
the three months and six months ended June 30, 2002 and July 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 June 30, 2002, 5,435,093 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:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2002 2001 2002 2001
-------- ------- -------- -------
Reported net income......................... $33,536 $31,061 $63,954 $61,042
Add: Goodwill amortization, net of tax...... -- 2,389 -- 4,757
------- ------- ------- -------
Adjusted net income......................... $33,536 $33,450 $63,954 $65,799
======= ======= ======= =======
Basic earnings per share.................... $ .85 $ .80 $ 1.63 $ 1.58
Add: Goodwill amortization, net of tax per
basic share............................... -- .06 -- .12
------- ------- ------- -------
Adjusted basic earnings per share........... $ .85 $ .86 $ 1.63 $ 1.70
======= ======= ======= =======
Diluted earnings per share.................. $ .84 $ .79 $ 1.61 $ 1.56
Add: Goodwill amortization, net of tax per
diluted share............................. -- .06 -- .12
------- ------- ------- -------
Adjusted diluted earnings per share......... $ .84 $ .85 $ 1.61 $ 1.68
======= ======= ======= =======
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- (CONTINUED)
Changes in the carrying amount of goodwill for the six months ended June
30, 2002, by operating segment, are as follows:
COMMERCIAL MEDICAL AEROSPACE TOTAL
-------------- ----------- --------- --------
Goodwill, net at December 30,
2001.............................. $ 79,048 $120,551 $24,312 $223,911
Goodwill acquired................... 4,993 5,620 -- 10,613
Translation adjustment.............. 3,262 2,088 173 5,523
-------- -------- ------- --------
Goodwill, net at June 30, 2002...... $ 87,303 $128,259 $24,485 $240,047
======== ======== ======= ========
The following table reflects the components of intangible assets as of June
30, 2002:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------- --------
Intellectual property............... $ 22,234 $ 5,059
Customer lists...................... 21,000 1,230
Distribution rights................. 16,206 5,108
Amortization expense related to those intangible assets was $1.3 million
for the three months ended June 30, 2002. Estimated annual amortization expense
for each of the five succeeding years is as follows:
2002................................ $ 5,299
2003................................ 5,347
2004................................ 5,009
2005................................ 4,201
2006................................ 3,777
NOTE 3
Inventories consisted of the following:
JUNE 30, DEC. 30,
2002 2001
-------------- -----------
Raw materials....................... $161,957 $133,364
Work-in-process..................... 64,534 44,530
Finished goods...................... 127,465 130,881
-------- --------
$353,956 $308,775
======== ========
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4
BUSINESS SEGMENT INFORMATION:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ----------------------
JUNE 30, JULY 1, PERCENT JUNE 30, JULY 1, PERCENT
2002 2001 CHANGE 2002 2001 CHANGE
-------- -------- ------- ---------- -------- -------
Sales
Commercial................ $291,648 $246,598 18% $ 557,400 $469,416 19%
Medical................... 113,473 107,366 6% 220,776 213,770 3%
Aerospace................. 141,185 149,040 (5%) 276,526 290,552 (5%)
-------- -------- ---------- --------
Total..................... $546,306 $503,004 9% $1,054,702 $973,738 8%
======== ======== ========== ========
Operating profit
Commercial................ $ 29,684 $ 26,638 11% $ 55,388 $ 51,708 7%
Medical................... 18,394 17,658 4% 35,761 34,733 3%
Aerospace................. 10,888 16,436 (34%) 22,317 32,871 (32%)
-------- -------- ---------- --------
58,966 60,732* (3%) 113,466 119,312* (5%)
-------- -------- ---------- --------
Less:
Interest expense.......... 6,239 7,378 (15%) 12,275 14,089 (13%)
Corporate expenses........ 4,613 4,649 (1%) 9,183 9,293 (1%)
Goodwill amortization
expense................ -- 3,228* -- -- 6,428* --
-------- -------- ---------- --------
Income before taxes......... 48,114 45,477 6% 92,008 89,502 3%
Taxes on income........... 14,578 14,416 1% 28,054 28,460 (1%)
-------- -------- ---------- --------
Net income................ $ 33,536 $ 31,061 8% $ 63,954 $ 61,042 5%
======== ======== ========== ========
- ---------------
* 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 9% in the second quarter of 2002 to $546.3 million from
$503.0 million in 2001. Core product improvement accounted for approximately
one-third of the sales growth and acquisitions contributed approximately
two-thirds. The Commercial, Medical and Aerospace segments comprised 53%, 21%
and 26% of the company's net sales, respectively.
The gross profit margin decreased to 27.3% in 2002 compared with 28.5% in
2001, as all three segments contributed to the decline. Operating expenses as a
percentage of sales declined to 17.3% in 2002 compared with 18.0% in 2001 as
declines in Medical and Commercial offset an increase in the Aerospace Segment.
In addition, operating expenses in 2002 exclude the amortization of goodwill in
accordance with SFAS 142.
Operating profit decreased 3% in the second quarter from $60.7 million in
2001 to $59.0 million in 2002, as gains in the Commercial and Medical segments
were more than offset by a decline in the Aerospace Segment. Operating margin
declined to 10.8% in 2002 versus 12.1% in 2001. The Commercial, Medical and
Aerospace segments comprised 50%, 31% and 19% of the company's operating profit,
respectively.
7
Net income and diluted earnings per share for the quarter were $33.5
million and $0.84. Excluding goodwill amortization expense in the second quarter
of 2001, net income remained even with last year and diluted earnings per share
declined 1%. Interest expense declined in 2002 due to lower interest rates and a
reduction in the average debt outstanding. The effective income tax rate was
30.3% in 2002 compared with 31.7% 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 second quarter 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 increased 18% from $246.6 million in 2001
to $291.6 million in 2002 resulting from acquisitions, and to a lesser extent
core growth. Marine sales increased as a result of stronger market conditions
supplemented by new products. Industrial sales increased largely from the prior
year acquisition of a fuel handling system manufacturer, the current year
acquisition of a cable fabricator and distributor and growth in light-duty cable
applications. These factors more than compensated for a decline in alternative
fuel component sales. Automotive sales increased due to additional platforms for
the adjustable pedal, new programs in Europe and the acquisition of a Japanese
mechanical control manufacturer. Operating profit improved from $26.6 million in
2001 to $29.7 million in 2002 on core improvements in the Automotive and Marine
product lines. Operating margin was lower primarily from pricing pressures, $1.2
million of costs related to the curtailment of a North American automotive
facility and a lower contribution from acquisitions.
Medical Segment sales increased 6% from $107.4 million in 2001 to $113.5
million in 2002 due primarily to core growth in both product lines. Core
business gained in connection with the overall market supplemented by the
introduction of new products in the Hospital Supply product line. Volume
improvements increased operating profit 4% to $18.4 million in 2002 from $17.7
million in 2001. Operating margin declined slightly to 16.2% from 16.4% as a
result of a disposition in Europe and initial costs incurred for new instrument
management contracts.
Aerospace Segment sales declined 5% from $149.0 million in 2001 to $141.2
million in 2002. Cargo handling systems, industrial gas turbine services, repair
services and manufactured components sales and operating profit declined due to
market conditions in the commercial aerospace and industrial gas turbine
industries. Operating profit fell 34% to $10.9 million in 2002 from $16.4
million in 2001 and operating margin decreased from 11.0% in 2001 to 7.7% in
2002 resulting from lower volume, start up costs for a component manufacturing
facility in Mexico and spending for new products in cargo handling systems.
CASH FLOWS FROM OPERATIONS AND LIQUIDITY:
Cash flow from operations was $85.2 million for the first six months of
2002, compared to $54.7 million in 2001. The year-over-year increase was
primarily the result of improvements in working capital levels relative to last
year, particularly due to the timing of accounts payable. Total borrowings
increased by $8.4 million to $448.7 million at June 30, 2002 as compared to
$440.3 million at December 30, 2001. The increase was a result of currency
exchange rate changes and borrowings incurred to finance acquisitions offset by
repayments. The ratio of total debt to total capitalization decreased to 34% at
June 30, 2002 from 36% at December 30, 2001 as equity increased in 2002 at a
higher rate relative to debt.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the company's 2002 Annual Meeting of Shareholders held on April 26,
2002, the following were elected to the Board of Directors of the company for a
term expiring in 2005:
NAME VOTES FOR WITHHELD
- ---- ---------- --------
Lennox K. Black............................................. 35,193,531 491,907
William R. Cook............................................. 35,199,679 485,759
James W. Stratton........................................... 35,098,696 586,742
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
August 12, 2002
10