TELEFLEX INC - 10-Q Quarterly Report

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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 29, 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
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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)

(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.

The accompanying notes are an integral part of the condensed consolidated
financial statements.

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TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)

The accompanying notes are an integral part of the condensed consolidated
financial statements.

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TELEFLEX INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of the condensed consolidated
financial statements.

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TELEFLEX INCORPORATED

STATEMENT OF COMPREHENSIVE INCOME

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 nine months ended September 29, 2002 and September 30, 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 September 29, 2002,
5,386,132 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:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- (CONTINUED)

Changes in the carrying amount of goodwill for the nine months ended
September 29, 2002, by operating segment, are as follows:

The following table reflects the components of intangible assets as of
September 29, 2002:

Amortization expense related to those intangible assets was $1.6 million
for the three months ended September 29, 2002. Estimated annual amortization
expense for each of the five succeeding years is as follows:

2002................................... $ 5,976
2003................................... 6,439
2004................................... 6,203
2005................................... 5,477
2006................................... 4,958

NOTE 3

Inventories consisted of the following:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4

BUSINESS SEGMENT INFORMATION:

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* 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
through 9 herein, are based on the reclassified amounts.

MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA

RESULTS OF OPERATIONS:

Revenues increased 9% in the third quarter of 2002 to $508.2 million from
$466.0 million in 2001. The sales gain can be attributed primarily to
acquisitions in the Commercial Segment and to a lesser extent changes in
currency exchange rates. All three segments benefited from currency gains. The
Commercial, Medical and Aerospace segments comprised 52%, 22% and 26% of the
company's net sales, respectively.

The gross profit margin decreased to 26.1% in 2002 compared with 27.6% in
2001, as an improvement in the Commercial Segment was more than offset by
declines in the Medical and Aerospace segments. Operating expenses as a
percentage of sales declined to 18.3% in 2002 compared with 19.1% in 2001 as the
Medical and Aerospace segments reported declines. The Commercial Segment was
flat relative to the comparable period last year. In addition, operating
expenses in 2002 exclude the amortization of goodwill in accordance with SFAS
142.

Operating profit decreased 7% in the third quarter from $47.6 million in
2001 to $44.3 million in 2002, as gains in the Commercial and Medical segments
were more than offset by a decline in the Aerospace

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Segment. Operating margin declined to 8.7% in 2002 versus 10.2% in 2001. The
Commercial, Medical and Aerospace segments comprised 42%, 40% and 18% of the
company's operating profit, respectively.

Net income and diluted earnings per share for the quarter were $26.3
million and $0.66. Excluding goodwill amortization expense in the third quarter
of 2001, net income improved 7% and diluted earnings per share increased 6%.
Interest expense declined in 2002 due to lower interest rates and a reduction in
the average debt outstanding. The effective income tax rate was 20.7% in 2002
compared with 31.5% in 2001. The reduction in the effective tax rate for the
quarter includes a benefit of $3.1 million, or $0.08 per share from favorable
tax settlements. Excluding the effect of these settlements, the effective tax
rate would have been 30.0%, which compares favorably with the same period last
year due to a higher proportion of income in 2002 earned in countries with
relatively lower tax rates.

INDUSTRY SEGMENT REVIEW:

For comparative purposes third 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 20% from $218.3 million in 2001
to $262.1 million in 2002 as all three product lines gained. The increase
resulted from acquisitions, which accounted for half the growth, improvement in
core sales and to a lesser extent, from changes in currency exchange rates.
Stronger marine market conditions in both the OEM and aftermarket sectors
coupled with increased sales of non-marine products such as the modern burner
unit helped advance Marine product line revenues. The majority of Industrial
product line sales growth can be attributed to the acquisition of a fabricator
of stainless and carbon steel stranded products as core improvement in light
duty cables was offset by declines in alternative fuel component sales.
Automotive sales increased from the acquisition of a Japanese cable
manufacturer, and from additional adjustable pedal systems volume, which was
offset by price pressure in North America. Operating profit improved from $14.8
million in 2001 to $18.7 million in 2002 as all three product lines improved
from the additional sales. Operating margin improved to 7.2% in 2002 from 6.8%
in 2001 as a result of higher volume, additional production in low cost
countries and the successful Morse Controls integration, which began in 2001.

Medical Segment sales increased 7% from $104.5 million in 2001 to $112.2
million in 2002 due primarily to core growth in the Hospital Supply product line
boosted by gains in hospital supply and home care markets, new products and
currency exchange rate changes. Surgical Devices sales improved slightly as a
gain from the acquisition of an orthopedic instrument manufacturer offset a
market-driven decline in sales of certain closure products. Operating profit
improved 1% to $17.6 million in 2002 from $17.4 million in 2001 as a volume-
related improvement in the Hospital Supply product line more than compensated
for a decline in Surgical Devices. Operating margin declined to 15.7% from 16.6%
as a result of lower production rates in Hospital Supply to reduce inventory
levels, pricing pressures, and a product mix change in the Surgical Devices
product line.

Aerospace Segment sales declined 7% from $143.2 million in 2001 to $133.9
million in 2002 from weaker commercial aerospace and industrial gas turbine
market conditions affecting both volume and price. Cargo handling systems,
industrial gas turbine services, repair services and manufactured components all
reported double digit operating profit declines. Operating profit fell 48% to
$8.0 million in 2002 from $15.4 million in 2001 and operating margin decreased
from 10.7% in 2001 to 5.9% in 2002. The reductions resulted from the sales
declines and expenses related to development of new container and cargo handling
systems products.

CASH FLOWS FROM OPERATIONS AND LIQUIDITY:

Cash flow from operations was $150.6 million for the first nine months of
2002, compared to $109.5 million in 2001. Year-over-year increases in net
income, depreciation and lower working capital levels relative to last year,
particularly due to the timing of accounts payable and prepaid expenses, led to
the gain. Total borrowings increased by $13.0 million to $453.3 million at
September 29, 2002 as compared to

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$440.3 million at December 30, 2001. The increase was a result of borrowings
incurred to finance acquisitions and currency exchange rate changes offset by
repayments. The ratio of total debt to total capitalization improved to 34% at
September 29, 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.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Reports on Form 8-K.

On August 12, 2002 Teleflex Incorporated filed a report on Form 8-K dated
August 12, 2002, to file as an exhibit the sworn statement of its principal
executive officer and principal financial officer signed pursuant to the
Securities and Exchange Commission order requiring sworn statements.

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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.
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Harold L. Zuber, Jr.
Chief Financial Officer and
Executive Vice President

/s/ STEPHEN J. GAMBONE
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Stephen J. Gambone
Chief Accounting Officer
and Controller

November 12, 2002

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TELEFLEX INCORPORATED

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Jeffrey P. Black, Chief Executive Officer and President of Teleflex
Incorporated, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Teleflex
Incorporated;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ JEFFREY P. BLACK
--------------------------------------
Jeffrey P. Black
Chief Executive Officer and President

Date: November 12, 2002

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TELEFLEX INCORPORATED

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Harold L. Zuber, Jr., Chief Financial Officer and Executive Vice President of
Teleflex Incorporated, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Teleflex
Incorporated;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ HAROLD L. ZUBER, JR.
--------------------------------------
Harold L. Zuber, Jr.
Chief Financial Officer and Executive
Vice President

Date: November 12, 2002

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