TFX

Teleflex Inc. 10-Q Summary: Quarter Ended July 1, 2007

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended July 1, 2007, and the six months ended July 1, 2007, for Teleflex Incorporated, a diversified industrial company specializing in specialty-engineered products for commercial, medical, and aerospace industries. The company operates through three segments: Commercial, Medical, and Aerospace. The reporting period includes the completion of the sale of the Teleflex Aerospace Manufacturing Group (TAMG) business, which is now classified as a discontinued operation.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 4.5% in the quarter and 7.8% for the six-month period compared to the prior year. The six-month increase was driven by 4% core growth, 3% currency movements, and 1% from acquisitions.
• Profitability: Income from continuing operations increased 26.5% for the quarter and 39.9% for the six-month period. Gross profit margin improved to 31.3% in the quarter from 30.3% in the prior year.
• Discontinued Operations: Net income was significantly boosted by the sale of the TAMG business, which generated a net gain of approximately $48.8 million. This transaction is reported as a discontinued operation.
• Restructuring: Restructuring and impairment charges decreased significantly to $1.1 million for the quarter and $1.6 million for the six months, compared to $8.5 million and $13.0 million in the prior year periods, respectively.
• Liquidity: Cash and cash equivalents increased from $248.4 million at year-end 2006 to $444.7 million, primarily due to proceeds from the TAMG sale and strong operating cash flow. Net debt to total capital ratio declined to 4.8% from 18.5%.

Guidance, Outlook, and Risks

• Acquisition: On July 20, 2007, the company signed a definitive agreement to acquire Arrow International, Inc. for approximately $2 billion in cash. The transaction is expected to close in the fourth quarter of 2007 and will increase indebtedness by approximately $1.8 billion.
• Stock Repurchase: The Board authorized a $300 million stock repurchase program on June 14, 2007. No shares had been purchased as of July 1, 2007.
• Portfolio Review: The company has engaged Goldman Sachs & Co. to evaluate strategic alternatives for businesses in its Commercial Segment.
• Restructuring Outlook: The company expects to incur future restructuring costs of $4.2 million to $5.8 million in 2007 related to the 2006 program and $0.1 million to $0.2 million related to the 2004 program.
• Risks: Key risks include the ability to integrate acquired businesses, currency exchange rate fluctuations, raw material cost increases, and the successful closing of the Arrow acquisition subject to regulatory and shareholder approvals.

Investor Verification Checklist

• Verify the closing conditions and financing structure for the $2 billion Arrow International acquisition.
• Monitor the execution of the $300 million stock repurchase program and its impact on share count.
• Review the progress of the strategic review of the Commercial Segment by Goldman Sachs & Co.
• Track the realization of cost synergies and operational efficiencies in the Medical and Aerospace segments.
• Assess the impact of the $13.2 million charge to retained earnings related to the adoption of FIN No. 48 (Uncertain Tax Positions).
• Confirm the timeline for the remaining restructuring costs associated with the 2006 and 2004 programs.