<PAGE> 1
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- --------------------------------------------------------------------------------
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 28, 1999
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)
</TABLE>
<TABLE>
<S> <C>
630 WEST GERMANTOWN PIKE, SUITE 450
PLYMOUTH MEETING, PA 19462
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(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>
<S> <C>
CLASS OUTSTANDING AT MARCH 28,1999
----------------------------------- ---------------------------------
Common Stock, $1.00 Par Value 37,640,608
</TABLE>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAR. 28, DEC. 27,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
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Current assets
Cash and cash equivalents................................. $ 48,390 $ 66,689
Accounts receivable less allowance for doubtful
accounts............................................... 328,233 295,369
Inventories............................................... 232,893 235,869
Prepaid expenses.......................................... 20,893 19,015
---------- ----------
630,409 616,942
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 445,146 431,756
Investments in affiliates................................... 50,002 50,932
Intangibles and other assets................................ 122,459 116,287
---------- ----------
$1,248,016 $1,215,917
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
Current portion of borrowings and demand loans............ $ 93,023 $ 91,651
Accounts payable and accrued expenses..................... 206,012 194,525
Income taxes payable...................................... 29,948 25,303
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328,983 311,479
Long-term borrowings........................................ 270,700 275,581
Deferred income taxes and other............................. 97,979 94,407
---------- ----------
697,662 681,467
Shareholders' equity........................................ 550,354 534,450
---------- ----------
$1,248,016 $1,215,917
========== ==========
</TABLE>
2
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------------------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAR. 28, MAR. 29,
1999 1998
-------- --------
<S> <C> <C>
Revenues.................................................... $392,190 $345,760
-------- --------
Cost of sales............................................... 281,239 245,735
Operating expenses.......................................... 72,020 64,989
Interest expense............................................ 4,316 4,485
-------- --------
357,575 315,209
-------- --------
Income before taxes......................................... 34,615 30,551
Provision for taxes on income............................... 11,561 10,693
-------- --------
Net income.................................................. $ 23,054 $ 19,858
======== ========
Earnings per share
Basic..................................................... $ 0.61 $ 0.53
Diluted................................................... $ 0.60 $ 0.52
Dividends per share......................................... $ 0.115 $ 0.100
Average number of common and common equivalent shares
outstanding
Basic..................................................... 37,637 37,204
Diluted................................................... 38,390 38,320
</TABLE>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAR. 28, MAR. 29,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 23,054 $ 19,858
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization.......................... 15,880 13,904
(Increase) in accounts receivable...................... (36,284) (27,132)
(Increase) decrease in inventory....................... (1,117) 2,651
(Increase) decrease in prepaid expenses................ (1,844) 1,096
Increase in accounts payable and accrued expenses...... 9,160 9,784
Increase in income taxes payable....................... 6,123 7,785
-------- --------
14,972 27,946
-------- --------
Cash flows from financing activities:
Proceeds from new borrowings.............................. 7,000 9,280
Reduction in long-term borrowings......................... (2,219) (1,056)
Increase (decrease) in current borrowings and demand
loans.................................................. 4,944 (35,006)
Proceeds from stock compensation plans.................... 533 1,629
Dividends................................................. (4,328) (3,713)
-------- --------
5,930 (28,866)
-------- --------
Cash flows from investing activities:
Expenditures for plant assets............................. (21,208) (18,925)
Payments for businesses acquired.......................... (7,652) (1,000)
Proceeds from sale of businesses and assets............... 35,868
Investments in affiliates................................. (8,238) (602)
Other..................................................... (2,103) 2,103
-------- --------
(39,201) 17,444
-------- --------
Net (decrease) increase in cash and cash equivalents........ (18,299) 16,524
Cash and cash equivalents at the beginning of the period.... 66,689 30,702
-------- --------
Cash and cash equivalents at the end of the period.......... $ 48,390 $ 47,226
======== ========
</TABLE>
4
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TELEFLEX INCORPORATED
STATEMENT OF COMPREHENSIVE INCOME
-------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAR. 28, MAR. 29,
1999 1998
-------- --------
<S> <C> <C>
Net income.................................................. $23,054 $19,858
Cumulative translation adjustment........................... (2,507) 453
------- -------
Comprehensive income........................................ $20,547 $20,311
======= =======
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1
The accompanying unaudited condensed consolidated financial statements for
the three months ended March 28, 1999 and March 29, 1998 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
At March 28, 1999, 2,858,489 shares of common stock were reserved for
issuance under the company's stock compensation plans.
NOTE 3
Inventories consisted of the following:
<TABLE>
<CAPTION>
MAR. 28, DEC. 27,
1999 1998
-------- --------
<S> <C> <C>
Raw materials.......................................... $ 81,593 $ 80,891
Work-in-process........................................ 45,097 41,646
Finished goods......................................... 106,203 113,332
-------- --------
$232,893 $235,869
======== ========
</TABLE>
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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NOTE 4
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAR. 28, MAR. 29,
1999 1998
-------- --------
<S> <C> <C>
Sales
Commercial................................................ $184,496 $162,594
Medical................................................... 88,557 79,344
Aerospace................................................. 119,137 103,822
-------- --------
Total............................................. $392,190 $345,760
======== ========
Operating Profit
Commercial................................................ $ 19,619 $ 18,054
Medical................................................... 10,303 9,497
Aerospace................................................. 13,268 11,686
-------- --------
43,190 39,237
-------- --------
Less:
Interest expense.......................................... 4,316 4,485
Corporate expenses........................................ 4,259 4,201
-------- --------
Income before taxes......................................... 34,615 30,551
Taxes on income............................................. 11,561 10,693
-------- --------
Net income.................................................. $ 23,054 $ 19,858
======== ========
</TABLE>
MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA
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RESULTS OF OPERATIONS:
- ------------------------
Revenues increased 13% in the first quarter of 1999 to $392.2 million from
$345.8 million in 1998. Approximately one-third of the growth was the result of
acquisitions while the balance was generated internally, from gains in the
company's core product lines in each of the segments, Commercial, Medical and
Aerospace. The Commercial, Medical and Aerospace segments comprised 47%, 23% and
30% of the company's net sales, respectively.
The gross profit margin decreased to 28.3% in 1999 compared with 28.9% in
1998. The decline was due to lower gross profit margin in the Medical and
Commercial segments partially offset by an increase in the Aerospace Segment
and, a lower contribution to gross margin from recent acquisitions. Operating
expenses as a percentage of sales decreased to 18.4% in 1999 compared with 18.8%
in 1998 resulting primarily from a decline in the Commercial Segment.
Operating profit increased 10% in the first quarter from $39.2 million in
1998 to $43.2 million in 1999 from increases in all three segments while
operating margin declined slightly from 11.3% in 1998 to 11.0% of sales in 1999.
All three segments reported declines in operating margin. The Commercial,
Medical and Aerospace segments comprised 45%, 24% and 31% of the company's
operating profit, respectively.
Net income and diluted earnings per share for the quarter were $23.1
million and $.60 which represents a 16% and 15% increase, respectively, compared
with 1998. Interest expense decreased in 1999 as a result of a decrease in
interest rates offset in part by an increase in average debt. The effective
income tax rate was 33.4% in 1999 compared with 35.0% in 1998. The decline
resulted from a higher proportion of income in 1999 earned in countries with
relatively lower tax rates aided in part by a rate reduction in Germany.
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INDUSTRY SEGMENT REVIEW:
- ---------------------------
Sales in the Commercial Segment increased 13% from $162.6 million in 1998
to $184.5 million in 1999. The increase resulted from internal growth in all
three product lines, Automotive, Marine and Industrial. New marine products, new
product sales to non-marine markets and the strength of the domestic automotive
market resulted in the increase. Operating profit increased in 1999 from $18.1
million to $19.6 million compared with 1998, however, operating margin declined
from 11.1% to 10.6%. An increase in operating profit in the Marine and
Industrial product lines relating to volume offset a decline in Automotive. The
decline in operating margin resulted primarily from the Automotive product line
which included costs associated with the development and introduction of new
products.
The Medical Segment sales increased 12% from $79.3 million in 1998 to $88.6
million in 1999 due to gains in both the Hospital Supply and Surgical Devices
product lines. The gain resulted primarily from acquisitions, first in Hospital
Supply to extend the company's distribution in Europe and also in Surgical
Devices to add to instrument management services. Operating profit increased 8%
from $9.5 million to $10.3 million primarily from Surgical Devices while
operating margin declined to 11.6% from 12.0%. The decline in operating margin
resulted from the costs of integrating the acquisitions and from the lower
initial margins of the newly acquired companies.
The Aerospace Segment sales increased 15% from $103.8 million in 1998 to
$119.1 million in 1999 as gains in repairs and manufactured components offset
declines in cargo systems. Operating profit increased 14% due to the sales
increase, however, operating margin declined from 11.3% to 11.1% resulting from
a decline in the cargo systems product line and from the larger proportion of
sales from repairs where profits are shared with a joint venture partner.
CASH FLOWS FROM OPERATIONS AND LIQUIDITY:
- ----------------------------------------------
Cash flows from operating activities decreased $13.0 million during the
period ended March 28, 1999 compared with 1998 due to additional working
capital, primarily accounts receivable related to volume offset by higher net
income and depreciation. Long-term borrowings decreased $4.9 million from $275.6
million at December 27, 1998, to $270.7 million at March 28, 1999. The decrease
was the result of additional long-term borrowings net of repayments and the
effects of lower foreign currency translation rates. The increase in
shareholders' equity, primarily due to higher net income, resulted in an
improvement in the ratio of long-term borrowings to total capitalization from
34% at December 27, 1998 to 33% at March 28, 1999.
YEAR 2000:
Background
The "year 2000 issue" refers to computer programs written using two digits
rather than four to define the year. This could result in computer systems being
unable to distinguish between the year 1900 and the year 2000. The remediation
of non-compliant computer systems before the year 2000 by the company, and its
suppliers and customers is necessary to minimize the possibility of systems
failures causing disruptions in business operations.
Project
The company began its year 2000 remediation project in 1997 comprising
seven phases: (1) awareness, (2) inventory, (3) assessment, (4) analysis, (5)
conversion, (6) implementation and (7) post implementation. Each of the
company's more than eighty business units is responsible for carrying out its
own remediation plan with assistance and monitoring by a full time "year 2000
project office." These remediation plans include requirements to develop and
test contingency procedures in the event of unforeseen system failures due to
year 2000 issues. These contingency plans may include identifying alternate
suppliers for the company's significant production materials and supplies,
adjusting factory production schedules and other measures considered appropriate
by management. The company's goal is to achieve compliance in all of its
internal business information systems by the third quarter of 1999. At March 28,
1999 more than two-thirds of the activities,
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including replacements, upgrades and modifications in the normal course of
business, necessary for company-wide compliance have been completed. The project
also encompasses remediation of non-information systems such as embedded chips
within the company's production processes and infrastructure; and, customer and
supplier readiness. As part of its overall business risk assessment, the company
has sent year 2000 readiness surveys to its significant customers and suppliers.
The surveys are being continuously updated and, where necessary, will be
supplemented with on-site inspection of significant customers and suppliers.
Costs
The aggregate effort directed towards year 2000 remediation will be
approximately $10 to $12 million including the capitalized cost of computer
hardware and software systems and the redirected effort of the company's
existing resources. Approximately $8 million has been spent as of March 28, 1999
and has been funded by cash flows from operations.
Risks
Failure to correct a significant year 2000 issue could result in a
disruption of normal business operations. Due to the general uncertainty
inherent in the year 2000 issue, especially as it relates to the readiness of
customers and suppliers, a risk of a material adverse effect on the company's
future results of operations, liquidity and financial condition does exist. The
company believes that completion of its year 2000 project including scheduled
business system implementations will reduce the risk of significant disruption
of normal business operations. The company's operations are diversified among
over 80 separate business units. This diversified environment combined with
multiple customer and supplier relationships further reduces the risk of a
significant disruption to the company's operations.
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
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TELEFLEX INCORPORATED
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
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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.
--------------------------------------
Harold L. Zuber, Jr.
Vice President and Chief
Financial Officer
/s/ STEPHEN J. GAMBONE
--------------------------------------
Stephen J. Gambone
Controller and Chief
Accounting Officer
May 10, 1999
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 48,390
<SECURITIES> 0
<RECEIVABLES> 328,233
<ALLOWANCES> 0
<INVENTORY> 232,893
<CURRENT-ASSETS> 630,409
<PP&E> 710,086
<DEPRECIATION> 264,940
<TOTAL-ASSETS> 1,248,016
<CURRENT-LIABILITIES> 328,983
<BONDS> 270,700
0
0
<COMMON> 37,641
<OTHER-SE> 512,713
<TOTAL-LIABILITY-AND-EQUITY> 1,248,016
<SALES> 392,190
<TOTAL-REVENUES> 392,190
<CGS> 281,239
<TOTAL-COSTS> 281,239
<OTHER-EXPENSES> 72,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,316
<INCOME-PRETAX> 34,615
<INCOME-TAX> 11,561
<INCOME-CONTINUING> 23,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,054
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
