<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998
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 NO. 1-5353
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TELEFLEX INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 23-1147939
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
630 WEST GERMANTOWN PIKE, SUITE 450, PLYMOUTH MEETING, 19462
PENNSYLVANIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
Registrant's telephone number, including area code: (610) 834-6301
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1 per share--New York Stock Exchange
Preference Stock Purchase Rights -- New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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.
YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,248,260,616 as of February 1, 1999.
The registrant had 37,623,388 Common Shares outstanding as of February 1,
1999.
Documents Incorporated by Reference: (a) Annual Report to Shareholders for
the fiscal year ended December 27, 1998, incorporated partially in Part I and
Part II hereof; (b) Proxy Statement for the 1999 Annual Meeting of Shareholders,
incorporated partially in Part III hereof; and (c) Report on Form 8-K dated
December 7, 1998, incorporated in Part IV hereof.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
The Company* was incorporated in 1943 as a manufacturer of precision
mechanical push/pull controls for military aircraft. From this original single
market, single product orientation, the Company began to emphasize products and
services in a broader range of economically diverse markets to reduce its
vulnerability to economic cycles. Since the mid-1970s, the Company's investments
have been directed toward specific market niches employing its technical
capabilities to provide solutions to specific engineering problems and, over the
last ten years toward expanding into medical businesses. The continuing stream
of new products and value-added product improvements that have resulted from
this strategy have enabled the Company to participate in larger market segments.
Several of these new products and product improvements were developed by means
of an unusual investment program of the Company called the New Venture Fund.
Established in 1972, the Fund directs monies representing one-half percent of
sales into the development of new products and services. This concept allows for
entrepreneurial risk taking in new areas by encouraging innovation and
competition among the Company's managers for funds to pursue new programs and
activities independent of their operating budgets. Examples of New Venture
projects include the initial funding of SermeTel(R) research and most of the
early seed money for certain medical products.
The Company's business is separated into three business
segments -- Commercial, Medical and Aerospace.
COMMERCIAL SEGMENT
The Commercial Segment designs and manufactures proprietary mechanical and
electrical controls for the automotive market; mechanical, electrical and
hydraulic controls, and electronic products for the pleasure marine market; and
proprietary products for the fluid transfer and outdoor power equipment markets.
Products in the Commercial Segment generally are less complex and are
produced in higher unit volume than those of the Company's other two segments.
They are manufactured both for general distribution as well as custom fabricated
to meet individual customer needs. Consumer spending patterns generally
influence the market trends for these products.
The Commercial Segment consists of three major product lines: Marine,
Automotive and Industrial.
The Company is a leading domestic producer of mechanical steering systems
for pleasure power boats. It also manufactures hydraulic steering systems,
engine throttle and shift controls, electrical gauges and instrumentation, GPS
driven navigation systems, autopilots and electronic fishfinders. In 1994, the
Company acquired TX Controls, a Swedish manufacturer of mechanical and hydraulic
steering systems, engine control systems and cables for application on marine
craft and industrial vehicles. The Company's marine products are sold
principally to boat builders and in the aftermarket with the Humminbird line of
electronic fishfinders sold substantially through retail outlets. These products
are used principally on pleasure craft but also have application on commercial
vessels.
The Company is a major supplier of driver control systems to automotive
manufacturers worldwide. The principal products in this market are accelerator,
transmission shift, park lock, window regulator controls, pedal box, gear shift
systems, heat resistant flexible fuel line and adjustable pedal systems. In 1995
the Company acquired the cable controls businesses of Handy & Harmon Automotive
Group. This acquisition broadened the automotive product line by adding a park
brake and provided a manufacturing plant in Mexico. In 1996 the Company acquired
a U.K. manufacturer of cable control products which established the Company's
automotive cable operations in Europe. In May 1997 the Company acquired Comcorp
Technologies, Inc. a supplier of pedal assemblies and other automotive
components and systems. In December 1997 the Company acquired United Parts Group
N.V. a European manufacturer of gear shift systems and other components
supplying most of the European auto and truck makers. The Truck Systems
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* As used herein the "Company" refers to Teleflex Incorporated and its
consolidated subsidiaries.
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Division of United Parts was sold in February 1998. The remaining Driver Control
Division, with five manufacturing plants throughout Europe, expanded the
Company's entrance into the European automotive market. The acquisitions of both
Comcorp and United Parts are part of the Company's strategy to integrate cable
controls with other automotive components in order to provide systems solutions
for customers. Acceptance by the automobile manufacturers of a Company-developed
control for use on a new model ordinarily assures the Company a large, but not
exclusive, market share for the supply of that control.
Industrial controls and electrical instrumentation products are also
manufactured for use in other applications, including agricultural equipment,
outdoor power equipment, leisure vehicles and other on- and off-road vehicles.
In addition, the Company produces stainless steel overbraided fluoroplastic hose
for fluid transfer in such markets as the chemical, petroleum and food
processing industries.
MEDICAL SEGMENT
The Medical Segment manufactures and distributes a broad range of invasive
disposable and reusable devices for the urology, gastroenterology,
anesthesiology and respiratory care markets worldwide. It also designs and
manufactures a variety of surgical instruments, closure systems and provides
instrument management services. Products in this segment generally are required
to meet exacting standards of performance and have long product life cycles.
External economic influences on sales relate primarily to spending patterns in
the worldwide medical devices and supplies market.
Within the Medical Segment, the Company has two major product lines:
Hospital Supply and Surgical Devices. In addition the Company has extrusion
capabilities which it uses to serve original equipment manufacturers. In the
late 1970s, the Company decided to apply its polymer technologies to the medical
market, and began by extruding intravenous catheter tubing which it sold to
original equipment manufacturers. Through Teleflex OEM, the Company also
produces standard and custom-designed semi-finished components for other medical
device manufacturers using its polymer materials and processing technology.
In 1989, the acquisition of Willy Rusch AG and affiliates in Germany
brought with it an established manufacturing base and distribution network,
primarily in Europe. This and other smaller acquisitions designed to broaden the
Company's product offerings form the base of the Hospital Supply product line.
The Hospital Supply product line includes the manufacture and sale of invasive
disposable and reusable devices for the urology, gastroenterology,
anesthesiology and respiratory care markets worldwide. Product offerings
include, among others, latex catheters, endotracheal tubes, laryngoscopes, face
masks, tracheostomy tubes and stents for airway and esophageal management.
The acquisitions of the Pilling Company in 1991 and Edward Weck
Incorporated in 1993 became the foundation of the Surgical Devices product line.
The Pilling and Weck businesses significantly expanded the product offerings,
marketing opportunities and selling capabilities in the surgical devices market
in the United States and provide opportunities for increasing international
sales. During 1994 and 1995, smaller acquisitions were made to balance the
Company's product offerings in Europe. In 1997 the acquisition of a manufacturer
with a complementary line of closure products increased the Company's product
offerings. The Surgical Devices product line focuses on three distinct markets:
surgical instruments, surgical closure products and instrument management
services. Each market is served by a separate sales force and management team
dedicated to each market. Surgical Devices designs, manufactures and
distributes, primarily through its own sales force, instruments used in both
open and minimally-invasive surgical procedures including general and
specialized surgical instruments such as scissors, forceps, vascular clamps,
needle holders and retractors; closure products such as ligation clips, appliers
and skin staples; and, provides specialized instrument management services. In
1998, the Company expanded its instrument management service capabilities with
the purchase of Sterilization Management Group (SMG) which operates five
reprocessing/sterilization plants specializing in reusable surgical textiles and
surgical instruments. SMG's offsite instrument management services complements
the Company's on-site services.
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AEROSPACE SEGMENT
The Aerospace Segment serves the commercial aerospace and turbine engine
markets. Its businesses design and manufacture precision controls and cargo
systems for aviation; provide coatings, repair services and manufactured
components for users of both flight and land-based turbine engines. Sales are
both to original equipment manufacturers and the aftermarket. These products and
services, many of which are proprietary, require a high degree of engineering
sophistication and are often custom designed. External economic influences on
these products and services relate primarily to spending patterns in the
worldwide aerospace industry.
In 1995 and 1996 the Company sold product lines as part of a structural
realignment within the Aerospace Segment. These businesses produced a variety of
mechanical and electromechanical controls for commercial and military aircraft,
ordnance and space vehicles. The sale of these product lines effectively ended
most of the Company's involvement in the military/defense sector of the
aerospace industry. Telair International manufactures and distributes cargo
handling systems for commercial aircraft and other aircraft controls. The
Company's cargo handling systems include patented digitally controlled systems
to move and secure containers of cargo inside commercial aircraft. In 1997 the
Company acquired Scandinavian Bellyloading Company, a European manufacturer of
cargo loading systems for narrow-body aircraft which complements the Company's
existing wide-body cargo handling systems. Cargo handling systems are sold
either to aircraft manufacturers as original installations or to airlines and
air freight carriers for retrofit of existing systems. The Company also designs,
manufactures and repairs mechanical and electromechanical components used on
both commercial and, to a lesser extent military aircraft. These other aircraft
controls include flight controls, canopy and door actuators, cargo winches and
control valves. The Company's design engineers work with design personnel from
the major aircraft manufacturers in the development of controls for use on new
aircraft. In addition, the Company supplies spare parts to aircraft operators
typically through distributors. This spare parts business extends as long as the
particular type of aircraft continues in service.
In the early 1960s, aircraft manufacturers began to encounter high
temperature lubrication problems in connection with mechanical controls for
aircraft jet engines. Through Sermatech International, the Company utilized its
aerospace experience and engineering capabilities to develop a series of
formulations of inorganic coatings to solve these high temperature lubrication
problems. These products were further developed by the Company and sold under
the trademark SermeTel(R) to provide anti-corrosion protection for compressor
blades and other airfoils. Sermatech International, through a network of
facilities in five countries, provides a variety of sophisticated protective
coatings and repair services for ground turbine engine components; highly-
specialized repairs for critical components such as fan blades and airfoils for
flight-based turbine engines; and manufacturing and high quality dimensional
finishing of airfoils and other turbine engine components. The Company has added
technologies through acquisition and internal development and now offers a
diverse range of technical services and materials technologies to turbine
markets throughout the world. In 1993 the Company acquired Mal Tool &
Engineering, a manufacturer of fan blades for flight turbines, and airfoils for
both flight and ground-based gas turbines and steam turbines. This acquisition
broadened the Company's product offering including turnkey manufactured and
coated airfoils and provided another entree to major international turbine
manufacturers. During the fourth quarter of 1995 the Company formed a joint
venture, Airfoil Technologies International LLC (ATI), with General Electric
Aircraft Engines to provide fan blade and airfoil repair services for
flight-based turbine engine blades. The Sermatech repair operations were
contributed to ATI which is owned 51% by the Company. ATI provides a vehicle for
the technological and geographic expansion of the Sermatech repairs services
business. To further broaden the Company's turbo-machinery technological and
manufacturing capabilities, and to improve the range of product offerings, the
Company, in 1996 acquired Lehr Precision, Inc., an electro-chemical machining
manufacturer of turbo-machinery components used on both flight and ground
turbines. In 1997 the Company acquired Gas-Path Technology, Inc. to further
expand its ground turbine repair capabilities within the Sermatech network of
facilities.
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MARKETING
In 1998, the percentages of the Company's consolidated net sales
represented by its major markets were as follows: aerospace -- 31%;
medical -- 24%; and commercial -- 45%.
The major portion of the Company's products are sold to original equipment
manufacturers. Generally, products sold to the aerospace and automotive markets
are sold through the Company's own force of field engineers. Products sold to
the marine, medical and general industrial markets are sold both through the
Company's own sales forces and through independent representatives and
independent distributor networks.
For information on foreign operations, export sales, and principal
customers, see text under the heading "Business segments and other information"
on page 25 of the Company's 1998 Annual Report to Shareholders, which
information is incorporated herein by reference.
COMPETITION
The Company has varying degrees of competition in all elements of its
business. None of the Company's competitors offers products for all the markets
served by the Company. The Company believes that its competitive position
depends on the technical competence and creative ability of its engineering and
development personnel, the know-how and skill of its manufacturing personnel as
well as its plants, tooling and other resources.
PATENTS
The Company owns a number of patents and has a number of patent
applications pending. The Company does not believe that its business is
materially dependent on patent protection.
SUPPLIERS
Materials used in the manufacture of the Company's products are purchased
from a large number of suppliers. The Company is not dependent upon any single
supplier for a substantial amount of the materials it uses.
BACKLOG
As of December 27, 1998 the Company's backlog of firm orders for the
Aerospace Segment was $418 million, of which it is anticipated that
approximately one-half will be filled in 1999. The Company's backlog for the
Aerospace Segment on December 28, 1997 was $364 million.
As of December 27, 1998 the Company's backlog of firm orders for the
Medical and Commercial segments was $21 million and $124 million, respectively.
This compares with $26 million and $98 million, respectively, as of December 28,
1997. Substantially all of the December 27, 1998 backlog will be filled in 1999.
Most of the Company's medical and commercial products are sold on orders calling
for delivery within no more than a few months so that the backlog of such orders
is not indicative of probable net sales in any future 12-month period.
EMPLOYEES
The Company had approximately 13,500 employees at December 27, 1998.
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EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company as of March 1,
1999 and the positions and offices with the Company held by each such officer
are as follows:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AGE WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Lennox K. Black 68 Chairman of the Board and Director
David S. Boyer 56 President, Chief Executive Officer and Director
John J. Sickler 56 President, TFX Equities, Inc.
Dr. Roy C. Carriker 61 President and Chief Operating Officer, TFX Sermatech
Harold L. Zuber, Jr. 49 Vice President and Chief Financial Officer
Steven K. Chance 53 Vice President, General Counsel and Secretary
Ira Albom 69 Senior Vice President
Louis T. Horvath 60 Vice President, Quality and Productivity
Ronald D. Boldt 56 Vice President, Human Resources
Janine Dusossoit 45 Vice President, Investor Relations
Thomas M. Byrne 52 Assistant Treasurer
Stephen J. Gambone 42 Controller and Chief Accounting Officer
</TABLE>
Mr. Boyer was elected President and Chief Executive Officer on April 28,
1995. Prior to that date he was President.
Dr. Carriker was named President and Chief Operating Officer, TFX Sermatech
on January 3, 1994. Prior to that date he was President, Sermatech
International.
Mr. Horvath was named to the position of Vice President, Quality and
Productivity on January 4, 1996. Prior to that date he was Vice President,
Quality Management.
Mr. Gambone was elected Controller and Chief Accounting Officer on April
24, 1998. Prior to that date he was Manager, Internal Auditing and Reporting.
Officers are elected by the Board of Directors for one year terms. No
family relationship exists among any of the executive officers of the Company.
ITEM 2. PROPERTIES
The Company's operations have approximately 100 owned and leased properties
consisting of plants, engineering and research centers, distribution warehouses
and other facilities. The properties are maintained in good operating condition.
All the plants are suitably equipped and utilized, and have space available for
the activities currently conducted therein and the increased volume expected in
the foreseeable future.
The following are the Company's major facilities:
<TABLE>
<CAPTION>
SQUARE OWNED OR EXPIRATION
LOCATION FOOTAGE LEASED DATE
-------- ------- -------- ----------
<S> <C> <C> <C>
COMMERCIAL SEGMENT
Dassel, Germany............................................. 140,000 Owned N/A
Van Wert, OH................................................ 130,000 Owned(1) N/A
Warren, MI.................................................. 115,000 Leased 2004
Limerick, PA................................................ 110,000 Owned N/A
Dalstorp, Sweden............................................ 105,000 Owned N/A
Hagerstown, MD.............................................. 103,000 Owned(1) N/A
Waterbury, CT............................................... 99,000 Leased 2003
Eufaula, AL................................................. 98,000 Owned N/A
Haysville, KS............................................... 98,000 Leased 2003
Suffield, CT................................................ 90,000 Leased 2000
Hillsdale, MI............................................... 85,000 Owned(1) N/A
Sarasota, FL................................................ 82,000 Owned(1) N/A
Willis, TX.................................................. 70,000 Owned(1) N/A
Nuevo Laredo, Mexico........................................ 67,000 Leased 2008
Eufaula, AL................................................. 61,000 Owned N/A
Birmingham, England......................................... 60,000 Leased 2016
</TABLE>
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<TABLE>
<CAPTION>
SQUARE OWNED OR EXPIRATION
LOCATION FOOTAGE LEASED DATE
-------- ------- -------- ----------
<S> <C> <C> <C>
La Clusienne, France........................................ 60,000 Owned N/A
Plymouth, MI................................................ 55,000 Leased 2003
Lebanon, VA................................................. 53,000 Owned(1) N/A
Lyons, OH................................................... 50,000 Owned N/A
Vrable, Slovakia............................................ 49,000 Leased 2003
Auburn Hills, MI............................................ 38,000 Owned N/A
Goteborg, Sweden............................................ 38,000 Owned N/A
Swainsboro, GA.............................................. 37,000 Leased 2004
Richmond, Canada............................................ 35,000 Leased 2002
Vancouver, B.C., Canada..................................... 30,000 Owned N/A
Troy, MI.................................................... 29,000 Leased 2003
Selmer, TN.................................................. 24,000 Leased 2002
Birmingham, England......................................... 24,000 Leased 2011
Poole, England.............................................. 20,000 Owned N/A
MEDICAL SEGMENT
Kernen, Germany............................................. 263,000 Owned N/A
Durham, NC.................................................. 144,000 Owned N/A
Kernen, Germany............................................. 114,000 Leased 2013
Taiping, Malaysia........................................... 85,000 Owned N/A
Lurgan, Northern Ireland.................................... 80,000 Owned N/A
Duluth, GA.................................................. 69,000 Leased 2009
Fort Washington, PA......................................... 65,000 Owned N/A
Jaffrey, NH................................................. 60,000 Owned(1) N/A
Franiere, Belgium........................................... 59,000 Leased 2005
Tampa, FL................................................... 47,000 Leased 2002
Houston, TX................................................. 46,000 Leased 2003
Montevideo, Uruguay......................................... 45,000 Owned N/A
Baltimore, MD............................................... 40,000 Leased 2002
Bad Liebenzell, Germany..................................... 36,000 Leased 2000
Bourg-en-Bresse, France..................................... 34,000 Leased 1999
Betschdorf, France.......................................... 32,000 Owned N/A
Livonia, MI................................................. 32,000 Leased 2003
High Wycombe, England....................................... 25,000 Leased 2012
Limerick, Ireland........................................... 16,000 Leased 2020
AEROSPACE SEGMENT
Cincinnati, OH.............................................. 160,000 Leased 2004
Oxnard, CA.................................................. 145,000 Owned N/A
Muncie, IN.................................................. 105,000 Leased 2008
Mentor, OH.................................................. 90,000 Owned N/A
Manchester, CT.............................................. 74,000 Owned N/A
Limerick, PA................................................ 70,000 Owned N/A
Derbyshire, England......................................... 70,000 Leased 1999
Singapore, Asia............................................. 61,000 Owned N/A
Lincoln, England............................................ 50,000 Leased 2018
Compton, CA................................................. 49,000 Leased 1999
Cincinnati, OH.............................................. 35,000 Owned N/A
Biddeford, ME............................................... 32,000 Owned N/A
Hausham, Germany............................................ 30,000 Owned N/A
</TABLE>
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(1) The Company is the beneficial owner of these facilities under installment
sale or similar financing agreements.
In addition to the above, the Company owns or leases approximately
1,000,000 square feet of warehousing, manufacturing and office space located in
the United States, Canada, Europe and Asia.
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ITEM 3. LEGAL PROCEEDINGS
The Company is subject to numerous federal, state and local environmental
laws and regulations including the Resource Conservation and Recovery Act,
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Air Act and, the Clean Water Act. Environmental programs are in place throughout
the Company which include training, auditing and monitoring to ensure compliance
with such laws and regulations. In addition, the United States Environmental
Protection Agency has named the Company as a potentially responsible party at
various sites throughout the country. Environmental costs, including liabilities
associated with such sites, and the costs of complying with existing
environmental regulations are not expected to result in a liability material to
the Company's consolidated financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
See "Quarterly Data" on page 26 of the Company's 1998 Annual Report to
Shareholders for market price and dividend information. Also see the Note
entitled "Borrowings and Leases" on page 24 of such Annual Report for certain
dividend restrictions under loan agreements, all of which information is
incorporated herein by reference. The Company had approximately 1,300 registered
shareholders at February 1, 1999.
ITEM 6. SELECTED FINANCIAL DATA
See pages 28 through 31 of the Company's 1998 Annual Report to
Shareholders, which pages are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See the text under the heading "Financial Review" on pages 32 through 39 of
the Company's 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the text section entitled "Liquidity, Market Risk and Capital
Resources" contained within the "Financial Review" on pages 32 through 39 of the
Company's 1998 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 19 through 27 of the Company's 1998 Annual Report to
Shareholders, which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Company's Directors and Director
nominees, see "Election Of Directors" and "Additional Information About The
Board Of Directors" on pages 2 through 4 of the Company's Proxy Statement for
its 1999 Annual Meeting, which information is incorporated herein by reference.
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<PAGE> 9
For information with respect to the Company's Executive Officers, see Part
I of this report on page 5, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
See "Additional Information About The Board of Directors", "Board
Compensation Committee", "Five-Year Shareholder Return Comparison" and
"Executive Compensation and Other Information" on pages 4 through 8 of the
Company's Proxy Statement for its 1999 Annual Meeting, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Security Ownership of Certain Beneficial Owners and Management" on
pages 1 and 2, "Section 16(a) Beneficial Ownership Reporting Compliance" on page
2 and "Election Of Directors" on pages 2 and 3 of the Company's Proxy Statement
for its 1999 Annual Meeting, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Additional Information About The Board Of Directors", "Board
Compensation Committee" and "Executive Compensation and Other Information" on
pages 4 through 8 of the Company's Proxy Statement for its 1999 Annual Meeting,
which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements:
The index to Consolidated Financial Statements and Schedules is set
forth on page 10 hereof.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on December 7, 1998 in conjunction with
the adoption of a shareholders' rights plan by the Board of Directors,
which document is incorporated herein by reference.
(c) Exhibits:
The Exhibits are listed in the Index to Exhibits.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 2-84148 (filed June 28, 1989), 2-98715 (filed May 11, 1987), 33-34753
(filed May 10, 1990) and 33-53385 (filed April 29, 1994):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized as of the
date indicated below.
TELEFLEX INCORPORATED
By LENNOX K. BLACK
------------------------------------
Lennox K. Black
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and as of the date indicated below.
By DAVID S. BOYER
------------------------------------
David S. Boyer
(President and Principal Executive
Officer)
By HAROLD L. ZUBER, JR.
------------------------------------
Harold L. Zuber, Jr.
(Vice President and Principal
Financial Officer)
By STEPHEN J. GAMBONE
------------------------------------
Stephen J. Gambone
(Controller and Principal Accounting
Officer)
Pursuant to General Instruction D to Form 10-K, this report has been signed
by Steven K. Chance as Attorney-in-Fact for a majority of the Board of Directors
as of the date indicated below.
<TABLE>
<S> <C>
Lennox K. Black Director
Pemberton Hutchinson Director
Donald Beckman Director
James W. Stratton Director
Joseph S. Gonnella, MD Director
William R. Cook Director
Lewis E. Hatch, Jr. Director
Palmer E. Retzlaff Director
Sigismundus W. W. Lubsen Director
David S. Boyer Director
Patricia C. Barron Director
</TABLE>
By STEVEN K. CHANCE
------------------------------------
Steven K. Chance
Attorney-in-Fact
Dated: March 26, 1999
9
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TELEFLEX INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements together with the report thereon of
PricewaterhouseCoopers LLP dated February 10, 1999 on pages 19 to 31 of the
accompanying 1998 Annual Report to Shareholders are incorporated in this Annual
Report on Form 10-K. With the exception of the aforementioned information, and
those portions incorporated by specific reference in this document, the 1998
Annual Report to Shareholders is not to be deemed filed as part of this report.
The following Financial Statement Schedule together with the report thereon of
PricewaterhouseCoopers LLP dated February 10, 1999 on page 11 should be read in
conjunction with the consolidated financial statements in such 1998 Annual
Report to Shareholders. Financial Statement Schedules not included in this Form
10-K Annual Report have been omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
FINANCIAL STATEMENT SCHEDULE
Schedule:
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
II Valuation and qualifying accounts........................... 12
</TABLE>
10
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Teleflex Incorporated
Our audits of the consolidated financial statements referred to in our report
dated February 10, 1999 appearing on page 27 of the 1998 Annual Report to
Shareholders of Teleflex Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 10, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8
(No. 2-84148, No. 2-98715, No. 33-34753, and No. 33-53385) of Teleflex
Incorporated of our report dated February 10, 1999 appearing on page 27 of the
1998 Annual Report to Shareholders which is incorporated in this Annual Report
on Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 26, 1999
11
<PAGE> 13
TELEFLEX INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DOUBTFUL BALANCE AT
BEGINNING CHARGED TO ACCOUNTS END OF
FOR THE YEAR ENDED OF YEAR INCOME WRITTEN OFF YEAR
------------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
December 27, 1998........................ $5,668,000 $2,190,000 $(3,281,000) $4,577,000
December 28, 1997........................ $4,110,000 $2,218,000 $ (660,000) $5,668,000
December 29, 1996........................ $3,797,000 $2,026,000 $(1,713,000) $4,110,000
</TABLE>
12
<PAGE> 14
March 26, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <C> <S>
3(a) - The Company's Articles of Incorporation (except for Article
Thirteenth and the first paragraph of Article Fourth) are
incorporated herein by reference to Exhibit 3(a) to the
Company's Form 10-Q for the period ended June 30, 1985.
Article Thirteenth of the Company's Articles of
Incorporation is incorporated herein by reference to Exhibit
3 of the Company's Form 10-Q for the period ended June 28,
1987. The first paragraph of Article Fourth of the Company's
Articles of Incorporation is incorporated herein by
reference to Exhibit 3(a) included herein.
(b) - The Company's Bylaws are incorporated herein by reference to
Exhibit 3(b) of the Company's Form 10-K for the year ended
December 28, 1987.
4 - The Company's Shareholders' Rights Plan is incorporated
herein by reference to the Company's Form 8-K dated December
7, 1998.
10(a) - The 1982 Stock Option Plan, incorporated herein by reference
to the Company's registration statement on Form S-8
(Registration No. 2-84148), as supplemented, with amendments
of April 26, 1991 incorporated by reference to the Company's
definitive Proxy Statement for the 1991 Annual Meeting of
Shareholders.
(b) - The 1990 Stock Compensation Plan, incorporated herein by
reference to the Company's registration statement on Form
S-8 (Registration No. 33-34753), revised and restated as of
December 1, 1997 incorporated by reference to Exhibit 10(b)
of the Company's Form 10-K for the year ended December 28,
1997.
(c) - The Salaried Employees' Pension Plan, as amended and
restated in its entirety, effective July 1, 1989 and the
retirement income plan as amended and restated in its
entirety effective January 1, 1994 and related Trust
Agreements, dated July 1, 1994 is incorporated by reference
to the Company's Form 10-K for the year ended December 25,
1994.
(d) - Description of deferred compensation arrangements between
the Company and its Chairman, L. K. Black, incorporated by
reference to the Company's definitive Proxy Statement for
the 1999 Annual Meeting of Shareholders.
(e) - Description of compensation arrangement between the Company
and its President and Chief Executive Officer, David S.
Boyer, incorporated by reference to the Company's definitive
Proxy Statement for the 1999 Annual Meeting of Shareholders.
(f) - Teleflex Incorporated Deferred Compensation Plan effective
as of January 1, 1995, and amended and restated January 1,
1999.
(g) - Information on the Company's Profit Participation Plan,
insurance arrangements with certain officers and deferred
compensation arrangements with certain officers,
non-qualified supplementary pension plan for salaried
employees and compensation arrangements with directors is
incorporated by reference to the Company's definitive Proxy
Statement for the 1997, 1998 and 1999 Annual Meeting of
Shareholders.
(h) - The Company's Voluntary Investment Plan is incorporated by
reference to Exhibit 28 of the Company's registration
statement on Form S-8 (Registration No. 2-98715).
13 - Pages 19 through 39 of the Company's Annual Report to
Shareholders for the period ended December 27, 1998.
21 - The Company's Subsidiaries.
23 - Consent of Independent Accountants (see page 11 herein).
24 - Power of Attorney.
27 - Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3(a)
At the Company's Annual Meeting of Shareholders held on Friday, April 24,
1998, the first paragraph of Article Fourth of the Company's Articles of
Incorporation was amended to read as follows:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Hundred Million Five
Hundred Thousand (100,500,000) of which (a) Five Hundred Thousand (500,000)
shall be Preference Stock of the par value $1 per share, issuable in
series, and (b) One Hundred Million (100,000,000) shall be Common Stock of
the par value of $1 per share."
The results of the vote for the ratification of this amendment were
30,052,928 votes for, 1,488,538 votes against, and 90,528 votes abstaining.
<PAGE> 1
EXHIBIT 10(f)
TELEFLEX INCORPORATED
DEFERRED COMPENSATION PLAN
This is the TELEFLEX INCORPORATED DEFERRED COMPENSATION PLAN, as
amended and restated effective January 1, 1999 (the "Plan"), that Teleflex
Incorporated, a Delaware corporation (the "Corporation"), maintains to provide
its directors with a deferred compensation arrangement and that the Corporation
and its participating affiliates maintain to provide certain of their employees
with such an arrangement.
1. Effective Date. The Plan was effective January 1, 1995. This
amendment and restatement is effective January 1, 1999. "Fiscal Year" means each
twelve-consecutive month period beginning on January 1 and ending the following
December 31 during which the Plan is in effect.
2. Eligibility. Any director of the Corporation, and any employee
of the Corporation or a participating affiliate who is designated by the
Corporation as a Key (Management) Employee, shall be eligible to participate
herein (hereinafter referred to as a "Participant").
3. Annual Retainer Deferrals. Prior to the beginning of a Fiscal
Year, a Participant who is a director entitled to receive an annual retainer
from the Corporation for service on the Corporation's Board of Directors may
elect to defer receipt of any whole percent of his or her retainer payable
during that Fiscal Year.
4. Salary and Bonus Deferrals. Prior to the beginning of a Fiscal
Year, a Participant who is an employee may elect to defer receipt of any whole
percent (2% minimum to 50% maximum) of his or her base salary, commissions or
other regularly paid cash compensation payable during that Fiscal Year. In
addition, such a Participant may elect to defer receipt of any whole percentage
(10% minimum to 75% maximum) of his or her annual discretionary bonus which
otherwise would be payable during that Fiscal Year.
5. Restricted Stock and Option Deferrals.
a. Restricted Stock. Prior to the beginning of a Fiscal Year
in which a restricted stock award is scheduled to be made by the
Corporation's Board of Directors under the Teleflex Incorporated
1990 Stock Compensation Plan or any stock compensation plan
subsequently adopted by the Corporation (the "Stock Plan"), a
Participant who is potentially eligible to receive such an award in
such year may elect to defer receipt of any whole number of shares
(10% minimum to 100% maximum) of the award under this Plan. Any rule
under the Stock Plan relating to risk of forfeiture of shares
awarded under the Stock Plan shall
<PAGE> 2
continue to apply to any portion of an award the receipt of which is
deferred under this Plan.
b. Options. A Participant may elect to defer receipt of shares
which would otherwise be received upon the exercise of a
nonqualified stock option awarded under the Stock Plan in accordance
with procedures established by the Plan Administrative Committee and
with the approval of the Compensation Committee of the Corporation's
Board of Directors.
c. Dividends and Stock Splits. Cash dividends paid with
respect to shares deferred under this Paragraph 5 and any cash paid
in lieu of fractional shares shall be deferred in the same manner as
salary and bonus deferrals under Paragraph 4. Stock dividends and
stock splits paid with respect to deferred shares shall also be
deferred and held and paid under the Plan, in the same manner as
deferred shares.
6. Deferred Benefits. Any amounts deferred by a Participant
pursuant to Paragraph 3 or Paragraph 4, and cash dividends and cash payable in
lieu of a fractional share that are deferred pursuant to Paragraph 5, and any
shares deferred by a Participant pursuant to Paragraph 5, as adjusted for stock
dividends and splits, shall constitute the deferred benefits ("Deferred
Benefits") payable hereunder. Deferred Benefits shall be credited to a notional
account ("Account") established for each Participant by the Committee.
7. Investments.
A Participant's Account (other than shares deferred under Paragraph
5) shall be credited with earnings, gains and losses based on the Participant's
investment elections. The Participant's investment elections shall be made
annually and shall indicate (in 5% increments) how the Participant's Account
(other than shares deferred under Paragraph 5) and future amounts credited to
his or her Account should be deemed invested among the options available under
the Plan.
The investment options available under the Plan are:
a. Fixed Income Option. Amounts deemed invested in this option
shall be credited with interest during a Fiscal Year at a rate equal
to 1.5% plus the five-year U.S. Treasury Bond yield as published in
the Wall Street Journal on the last business day of the November
preceding the beginning of the Fiscal Year. Such interest shall be
credited on a quarterly basis in arrears to Participants' Accounts.
-2-
<PAGE> 3
b. Teleflex Common Stock Option. Amounts deemed invested in
this option will be valued as if the amounts were invested in shares
of Teleflex Incorporated common stock, par value $1 per share, and
all dividends received on such shares were reinvested in shares of
such stock.
8. Funding. In order to meet its obligations hereunder, the
Corporation and any participating affiliate may, but shall not be required to,
set aside or earmark an amount necessary to provide for payment of Participants'
Account balances. In any event, the obligations of the Corporation and any
participating affiliate hereunder shall constitute general, unsecured
obligations, payable solely out of their respective general assets, and no
Participant shall have any right to specific assets. This shall be considered an
"unfunded" arrangement for purposes of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
9. Distributions.
a. A Participant's Account balance shall be distributed or
commence to be distributed to a Participant within 30 days after (1)
the date the Participant dies, becomes disabled or terminates
employment for any other reason, or (2) the distribution date
elected by the Participant (an "Alternative Date"). The Alternative
Date elected by a Participant shall be no earlier than the first day
of the fifth calendar year following the date of the Participant's
election. An Alternative Date may be revised by the Participant,
provided that (1) such revision occurs at least twelve months prior
to the original Alternative Date, and (2) the new Alternative Date
is no earlier than the first day of the fifth calendar year
following the date of such revision.
b. A Participant shall elect the manner in which his or her
Account balance will be distributed when he or she first elects to
participate in the Plan. Distribution may be made in a lump sum
payment or in approximately equal annual installments over either a
five or ten-year period. The form of payment elected may be revised
by a Participant, provided that such revision occurs at least twelve
months prior to the date on which payment of his or her Account
balance is to commence.
c. The Corporation may permit a Participant to elect a
distribution prior to the time specified in subparagraph (a) under
the circumstances set forth in Treas. Reg. Section 1.457-2 (h)(4)
and (5), as determined by the Committee.
-3-
<PAGE> 4
d. The unpaid balance in a Participant's Account at his or her
death shall be paid to the beneficiary designated by the Participant
or, in the absence of an effective beneficiary designation, to his
or her estate.
10. Administration of the Plan. The Corporation shall appoint a
Plan Administrative Committee ("Committee"), which shall have full power and
authority to interpret, construe and administer the Plan and the Committee's
interpretation and construction hereof, and actions hereunder, or the amount or
recipient of the payment to be made herefrom, shall be binding and conclusive on
all persons for all purposes. In this connection, the Committee may delegate to
any individual, the duty to act for the Committee hereunder. No director,
officer or employee of the Corporation shall be liable to any person for any
action taken or omitted in connection with the interpretation and administration
of the Plan unless attributable to his or her own willful misconduct or lack of
good faith.
11. Amendments.
a. The Corporation, through the Compensation Committee of the
Corporation's Board of Directors, reserves the right to amend the
Plan at any time, in any manner whatsoever, after delivery of
written notification to all Participants then having an amount
credited to an Account hereunder of its intention and the effective
date thereof; provided, however, that no amendment shall have the
effect of reducing a Participant's Account balance before the later
of the date of the Compensation Committee's action or the effective
date of the amendment, as determined in accordance with the
provisions of the Plan in effect immediately before such date.
b. All amendments to the Plan shall be evidenced by a written
document executed by an executive officer of the Corporation.
12. Change of Control. If one of the events listed in Paragraphs
12a to 12d occurs, the Corporation and each participating affiliate shall
contribute to a grantor trust meeting the requirements of section 671 of the
Internal Revenue Code of 1986, as amended, within 30 days thereafter, an amount
equal to the entire Account balance standing to the credit of each Participant
who was a director of or employed, or formerly employed, by them or any of them.
a. Any person, entity or group of persons, within the meaning
of section 13(d) or section 14(d) of the Securities Exchange Act of
1934 ("Act"), or any comparable successor provisions shall acquire
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of 20 percent or more of
-4-
<PAGE> 5
either the outstanding shares of common stock or the combined voting
power of the Corporation's then outstanding voting securities
entitled to vote generally.
b. The approval by the stockholders of the Corporation of a
reorganization, merger, or consolidation, in each case, with respect
to which persons who were stockholders of the Corporation
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50 percent of the
combined voting power in the election of directors of the
reorganized, merged or consolidated Corporation.
c. A liquidation or dissolution of the Corporation's then
outstanding securities, or the liquidation or dissolution of the
Corporation or of the sale of all or substantially all of the
Corporation's assets.
d. A "Distribution Date" occurs under the Rights Agreement
dated as of January 11, 1999 between the Corporation and American
Stock Transfer & Trust Company, as Rights Agent.
13. Termination of the Plan. Continuance of the Plan is completely
voluntary, and is not assumed as a contractual obligation of the Corporation or
any participating affiliate. The Corporation and each participating affiliate,
having adopted the Plan, shall each have the right, at any time, to discontinue
prospectively the Plan as to Participants employed or formerly employed by each,
or, in the case of the Corporation, serving as a director, after delivery of
written notification to the affected Participants of such an intention and the
effective date thereof; provided, however, that any such termination shall not
adversely affect a Participant's Account balance as of the date of such
termination.
14. Miscellaneous.
a. Title to and beneficial ownership of any assets, whether
cash or investments, that the Corporation or the participating
affiliates may set aside or earmark to meet their respective
deferred obligations hereunder, shall at all times remain in the
Corporation or affiliate and no Participant or beneficiary shall
under any circumstances acquire any property interest in any
specific assets of the Corporation or affiliate; provided, however,
that legal title to any assets set aside in trust shall be in the
trustee of the trust. Nothing contained in the Plan and no action
taken pursuant to the provisions of the Plan shall create or be
construed to create a fiduciary relationship between the Corporation
or affiliate and any Participant or any other person. Any funds that
may be invested under the provisions of the Plan shall continue for
all purposes to be a part of the general funds of the Corporation or
an affiliate and no person other than the Corporation or affiliate
shall by virtue of the provisions of the Plan have any interest in
such funds. To the extent that any person acquires a right to
receive payments from the
-5-
<PAGE> 6
Corporation or an affiliate under the Plan, such right shall be no
greater than the right of any unsecured general creditor of the
Corporation or affiliate.
b. The right of the Participant or any other person to the
payment of deferred compensation or other benefits hereunder shall
not be assigned, transferred, pledged or encumbered except by will
or by the laws of descent and distribution.
c. If the Committee shall find that any person to whom any
payment is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, any payment
due (unless a prior claim therefor shall have been made by a duly
appointed guardian, committee or other legal representative) may be
paid to the spouse, a child, a parent, or a brother or sister, or to
any person deemed by the Committee to have incurred expense for such
person otherwise entitled to payment, in such manner and proportions
as the Committee may determine. Any such payment shall be a complete
discharge of the liabilities of the Corporation and its affiliates
under the Plan.
d. Nothing contained herein shall be construed as conferring
upon a Participant the right to continue in the employ of the
Corporation or an affiliate in any capacity.
e. The Plan shall be binding upon and inure to the benefit of
the Corporation and participating affiliates, and their successors
and assigns, and the Participants and their heirs, executors,
administrators and legal representatives.
15. The Plan shall be construed in accordance with, and governed
by, the law of the State of Delaware except to the extent that such law is
superseded by ERISA.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this amendment and
restatement of the Plan to be executed and attested by its duly authorized
officers and has caused its seal to be affixed as of the date first above
written.
(CORPORATE SEAL) TELEFLEX INCORPORATED
Attest:
/s/ HERBERT K. ZEARFOSS By: /s/ STEPHEN J. GAMBONE
Herbert K. Zearfoss
Assistant Secretary
Date: MAR 24 1999
-7-
<PAGE> 1
EXHIBIT 13
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended
- ------------------------------------------------------------------------------------------
DECEMBER 27, December 28, December 29,
1998 1997 1996
- ------------------------------------------------------------------------------------------
(Dollars in thousands, except per share)
<S> <C> <C> <C>
REVENUES $1,437,578 $1,145,773 $ 931,183
- ------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Materials, labor and other product costs 1,029,658 794,780 640,187
Selling, engineering and administrative expenses 266,106 230,153 190,341
Interest expense, net 17,054 14,435 13,876
- ------------------------------------------------------------------------------------------
1,312,818 1,039,368 844,404
- ------------------------------------------------------------------------------------------
Income before taxes 124,760 106,405 86,779
Taxes on income 42,210 36,333 29,617
- ------------------------------------------------------------------------------------------
NET INCOME $ 82,550 $ 70,072 $ 57,162
- ------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 2.21 $ 1.91 $ 1.61
Diluted $ 2.15 $ 1.86 $ 1.58
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 2
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 27, December 28,
1998 1997
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 66,689 $ 30,702
Accounts receivable, less allowance for doubtful
accounts, 1998 - $4,577; 1997 - $5,668 295,369 260,187
Inventories 235,869 218,538
Prepaid expenses 19,015 21,182
Assets held for sale -- 35,868
- ---------------------------------------------------------------------------------------------
Total current assets 616,942 566,477
- ---------------------------------------------------------------------------------------------
Plant assets
Land and buildings 149,883 122,127
Machinery and equipment 539,594 471,233
- ---------------------------------------------------------------------------------------------
689,477 593,360
Less accumulated depreciation 257,721 229,347
- ---------------------------------------------------------------------------------------------
Net plant assets 431,756 364,013
Investments in affiliates 50,932 37,510
Intangibles and other assets 116,287 111,165
- ---------------------------------------------------------------------------------------------
$ 1,215,917 $ 1,079,165
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand loans $ 50,076 $ 87,414
Current portion of long-term borrowings 41,575 28,315
Accounts payable 99,207 80,437
Accrued expenses 95,318 77,949
Income taxes payable 25,303 20,792
- ---------------------------------------------------------------------------------------------
Total current liabilities 311,479 294,907
Long-term borrowings 275,581 237,562
Deferred income taxes and other 94,407 82,943
- ---------------------------------------------------------------------------------------------
Total liabilities 681,467 615,412
- ---------------------------------------------------------------------------------------------
Shareholders' equity
Common shares, $1 par value
Issued: 1998 - 37,614,823 shares; 1997 - 37,118,146 shares 37,615 37,118
Additional paid-in capital 72,080 63,158
Retained earnings 439,389 373,467
Cumulative translation adjustment (14,634) (9,990)
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 534,450 463,753
- ---------------------------------------------------------------------------------------------
$ 1,215,917 $ 1,079,165
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 3
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
- ------------------------------------------------------------------------------------------------
DECEMBER 27, December 28, December 29,
1998 1997 1996
- ------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 82,550 $ 70,072 $ 57,162
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 60,105 47,940 38,751
Deferred income taxes 2,702 1,530 (711)
(Increase) in accounts receivable (24,745) (38,886) (9,131)
(Increase) in inventories (8,626) (13,920) (3,964)
Decrease (increase) in prepaid expenses 2,676 (3,477) (2,191)
Increase (decrease) in accounts payable
and accrued expenses 12,777 13,896 (5,056)
Increase (decrease) in income taxes payable 4,188 3,635 (1,198)
Gain on disposition of product lines -- -- (2,055)
- ------------------------------------------------------------------------------------------------
131,627 80,790 71,607
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from new borrowings 42,868 85,259 30,824
Reduction in long-term borrowings (19,670) (43,488) (39,114)
(Decrease) increase in current borrowings and
demand loans (39,029) 36,948 (3,671)
Proceeds from stock compensation plans 5,918 4,362 5,523
Dividends (16,628) (14,258) (12,056)
- ------------------------------------------------------------------------------------------------
(26,541) 68,823 (18,494)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for plant assets (69,063) (74,622) (40,500)
Payments for businesses acquired (22,026) (99,802) (26,599)
Proceeds from disposition of product lines and assets 35,868 -- 32,140
Investments in affiliates (15,691) (11,466) (2,568)
Other 1,813 (1,639) (2,622)
- ------------------------------------------------------------------------------------------------
(69,099) (187,529) (40,149)
- ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 35,987 (37,916) 12,964
Cash and cash equivalents at the beginning of the year 30,702 68,618 55,654
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 66,689 $ 30,702 $ 68,618
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 4
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended
- ---------------------------------------------------------------------------------
DECEMBER 27, December 28, December 29,
1998 1997 1996
- ---------------------------------------------------------------------------------
(Dollars in thousands, except per share)
<S> <C> <C> <C>
COMMON SHARES
Balance, beginning of year $ 37,118 $ 18,111 $ 17,537
Shares issued under compensation plans 497 235 174
Common stock dividend -- 18,520 --
Shares issued in acquisitions -- 252 400
- ---------------------------------------------------------------------------------
Balance, end of year 37,615 37,118 18,111
- ---------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 63,158 58,941 49,999
Shares issued under compensation plans 8,922 4,127 5,349
Shares issued in acquisitions -- 90 3,593
- ---------------------------------------------------------------------------------
Balance, end of year 72,080 63,158 58,941
- ---------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 373,467 336,173 291,067
Net income 82,550 70,072 57,162
Cash dividends (16,628) (14,258) (12,056)
Common stock dividend -- (18,520) --
- ---------------------------------------------------------------------------------
Balance, end of year 439,389 373,467 336,173
- ---------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, end of year (14,634) (9,990) (4,049)
- ---------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 534,450 $ 463,753 $ 409,176
- ---------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE $ .45 $ .39 $ .34
- ---------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Net income $ 82,550 $ 70,072 $ 57,162
Cumulative translation adjustment (4,644) (5,941) (810)
- ---------------------------------------------------------------------------------
Total comprehensive income $ 77,906 $ 64,131 $ 56,352
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
DESCRIPTION OF BUSINESS
Teleflex Incorporated designs, manufactures and distributes engineered products
and services for the automotive, marine, industrial, medical and aerospace
markets worldwide.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Teleflex
Incorporated and its subsidiaries. These consolidated financial statements have
been prepared in conformity with generally accepted accounting principles, and
include management's estimates and assumptions that affect the recorded amounts.
Cash and cash equivalents include funds invested in a variety of liquid
short-term investments with an original maturity of three months or less.
Inventories are stated principally at the lower of average cost or market
and consisted of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 80,891 $ 72,806
Work-in-process 41,646 40,368
Finished goods 113,332 105,364
- --------------------------------------------------------------------------------
$235,869 $218,538
- --------------------------------------------------------------------------------
</TABLE>
Plant assets include the cost of additions and those improvements which
increase the capacity or lengthen the useful lives of the assets. Repairs and
maintenance costs are expensed as incurred. With minor exceptions, straight-line
composite lives for depreciation of plant assets are as follows: buildings 20 to
40 years; machinery and equipment 8 to 12 years.
Intangible assets, principally the excess purchase price of acquisitions
over the fair value of net tangible assets acquired, are being amortized over
periods not exceeding 30 years. The company periodically reviews the carrying
value of intangible assets primarily based on an analysis of cash flows.
Assets and liabilities of foreign subsidiaries are translated at the rates
of exchange at the balance sheet date; income and expenses are translated at the
average rates of exchange prevailing during the year. The related translation
adjustments are accumulated in shareholders' equity.
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed in the same manner except that the weighted
average number of common shares is increased for dilutive securities. The
difference between basic and diluted weighted average common shares results from
the assumption that dilutive stock options were exercised.
ACQUISITIONS AND DISPOSITIONS
During 1998 the company acquired various smaller businesses across several
markets for $22,026 in cash.
In December 1997 the company acquired a European company with two
businesses, Driver Control Systems and Truck Systems and Components, for $87
million in cash. In February 1998 the Truck Systems and Components business was
sold for $36 million in cash and is presented in the balance sheet at December
28, 1997 as assets held for sale.The net cash paid of $51 million for Driver
Control Systems was allocated to the assets acquired and liabilities assumed. A
total of $17 million representing the excess of acquisition cost over the fair
value of Driver Control Systems' net tangible assets, was allocated to
intangible assets and is being amortized over 20 years. Revenues would have
increased approximately $115 million and net income would not have been
significantly different in 1997 and 1996 had the acquisition of Driver Control
Systems occurred at the beginning of 1996. Also during 1997, the company paid
$12,788 to purchase the assets of various businesses and issued 504,800 shares
of common stock for all of the outstanding shares of an automotive components
manufacturer in an acquisition accounted for as a pooling of interests.
For 1998 and 1997 liabilities of $29,422 and $82,896 were assumed in
connection with the acquisitions. The assets, liabilities and operating results
of these businesses are included in the company's financial statements from
their dates of acquisition. With the exception of Driver Control Systems as
described above, financial position and results of operations would not have
been materially different had the acquisitions occurred as of the beginning of
the years acquired.
23
<PAGE> 6
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
BORROWINGS AND LEASES
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Notes at an average fixed
rate of 6.9%, due in installments
through 2008 $ 68,500 $ 76,000
Term loan notes, primarily Euro,
at an average fixed rate of 5.4%,
with an average maturity of four years 166,066 151,086
Other debt, mortgage notes and capital
lease obligations, at interest rates
ranging from 3% to 9% 82,590 38,791
- --------------------------------------------------------------------------------
317,156 265,877
Current portion of borrowings (41,575) (28,315)
- --------------------------------------------------------------------------------
$ 275,581 $ 237,562
- --------------------------------------------------------------------------------
</TABLE>
The various senior note agreements provide for the maintenance of minimum
working capital amounts and ratios and limit the repurchase of the company's
stock and payment of cash dividends. Under the most restrictive of these
provisions, $113,000 of retained earnings was available for dividends at
December 27, 1998.
The weighted average interest rate on the $50,076 of demand loans was 5.0%
at December 27, 1998. In addition, the company has approximately $200,000
available under several interest rate alternatives in unused lines of credit.
Interest expense in 1998, 1997 and 1996 did not differ materially from
interest paid, nor did the carrying value of year end long-term borrowings
differ materially from fair value.
The aggregate amounts of debt, including capital leases, maturing in each
of the four years after 1999 are as follows: 2000 - $29,446; 2001 - $29,899;
2002 - $94,161; 2003 - $23,068.
The company has entered into certain operating leases which require
minimum annual payments as follows: 1999 - $23,668; 2000 - $23,248; 2001 -
$16,811; 2002 - $13,000; 2003 - $11,577. The total rental expense for all
operating leases was $22,467, $15,311 and $13,288 in 1998, 1997 and 1996,
respectively.
SHAREHOLDERS' EQUITY AND STOCK COMPENSATION PLANS
The authorized capital of the company is comprised of 100,000,000 common shares,
$1 par value, and 500,000 preference shares. No preference shares were
outstanding during the last three years.
Options to purchase common stock are awarded at market price on the date
of grant and expire no later than 10 years after that date. No compensation
expense has been recognized for stock option plans. Diluted earnings per share
would have been reduced $.02 or less in 1998, 1997 and 1996 had compensation
expense for stock options been determined based on the fair value at the grant
date. The fair value of options granted during 1998, 1997 and 1996 of $13.64,
$10.38 and $6.51, respectively, was estimated using the Black-Scholes
option-pricing model. Officers and key employees held options for the purchase
of 1,907,520 shares of common stock at prices ranging from $10.17 to $43.75 per
share with an average exercise price of $20.22 per share and an average
remaining contractual life of 6 years. Such options are presently exercisable
with respect to 1,186,580 shares at an average exercise price of $16.89. Options
to purchase 47,000, 421,175 and 40,000 shares of common stock were granted at
average exercise prices of $40.59, $30.39 and $24.63, in 1998, 1997 and 1996,
respectively. Options exercised were 390,195, 457,752 and 251,330 at average
exercise prices of $14.84, $13.05 and $13.49 in 1998, 1997 and 1996,
respectively.
INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 32,278 $ 24,557 $ 22,534
State 3,239 2,622 2,438
Foreign 3,991 7,624 5,356
Deferred 2,702 1,530 (711)
- --------------------------------------------------------------------------------
$ 42,210 $ 36,333 $ 29,617
- --------------------------------------------------------------------------------
</TABLE>
The deferred income taxes provided and the balance sheet amounts of
$38,896 in 1998 and $34,273 in 1997 related substantially to the methods of
accounting for depreciation. Income taxes paid were $31,028, $29,581 and $28,210
in 1998, 1997 and 1996, respectively.
24
<PAGE> 7
A reconciliation of the company's effective tax rate to the U.S. statutory
rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes 1.7 1.7 1.8
Foreign income taxes (1.3) (.7) (.5)
Export sales benefit (1.5) (1.6) (1.7)
Other (.1) (.3) (.5)
- --------------------------------------------------------------------------------
Effective income tax rate 33.8% 34.1% 34.1%
- --------------------------------------------------------------------------------
</TABLE>
BUSINESS SEGMENTS AND OTHER INFORMATION
The company adopted the provisions of FAS 131, "Disclosures about Segments of an
Enterprise and Related Information" during the fourth quarter of 1998. The
company has determined that its reportable segments are Commercial, Medical and
Aerospace. This assessment reflects the aggregation of businesses which have
similar products and services, manufacturing processes, customers and
distribution channels, and is consistent with both internal management reporting
and resource and budgetary allocations. Reference is made to pages 28 through 31
for a summary of operations by business segment.
A summary of revenues, identifiable assets and operating profit relating
to the company's foreign operations, substantially European, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $571,587 $373,437 $314,141
Identifiable assets $551,440 $458,880 $326,993
Operating profit $ 38,537 $ 35,077 $ 28,408
- --------------------------------------------------------------------------------
</TABLE>
Export sales from the United States to unaffiliated customers approximated
$151,500, $130,600 and $98,500 in 1998, 1997 and 1996, respectively.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The company provides defined benefit pension and postretirement benefit plans to
eligible employees. Assumptions used in determining pension expense and benefit
obligations reflect a weighted average discount rate of 7.3% in 1998 and 7.7% in
1997, an investment rate of 9% and a salary increase of 5%. Assumptions used in
determining other postretirement expense and benefit obligations include a
weighted average discount rate of 7.3% in 1998 and 7.7% in 1997 and an initial
health care cost trend rate of 10%, declining to 6% over a period of 5 years.
Increasing the trend rate by 1% would increase the benefit obligation by $1,435
and would increase the 1998 benefit expense by $150. Decreasing the trend rate
by 1% would decrease the benefit obligation by $1,182 and would decrease the
1998 benefit expense by $120.
The following table provides the components of net benefit cost for the plans:
<TABLE>
<CAPTION>
Pension Other Benefits
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 3,074 $ 2,769 $ 216 $ 212
Interest cost 5,168 4,249 826 886
Actual return on
plan assets (9,471) (12,065) -- --
Net amortization
and deferral 2,047 6,779 98 209
Foreign plans 1,666 328 -- --
- --------------------------------------------------------------------------------
Net benefit cost $ 2,484 $ 2,060 $ 1,140 $ 1,307
- --------------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations, plan
assets, and funded status of the plans:
<TABLE>
<CAPTION>
Pension Other Benefits
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation,
beginning of year $ 78,918 $ 66,681 $ 12,546 $ 13,305
Service cost 3,074 2,769 216 212
Interest cost 5,168 4,249 826 886
Amendments 447 (699) -- --
Actuarial loss (gain) 2,584 (334) 473 (1,050)
Acquisitions 1,008 9,412 -- --
Currency translation 1,206 (573) -- --
Benefits paid (4,001) (2,915 (524) (807)
Foreign plans 1,666 328 -- --
- --------------------------------------------------------------------------------
Benefit obligation,
end of year 90,070 78,918 13,537 12,546
- --------------------------------------------------------------------------------
Fair value of plan
assets, beginning
of year 69,300 58,530 -- --
Actual return on
plan assets 9,471 12,065 -- --
Acquisitions 950 -- -- --
Contributions 875 1,200 -- --
Benefits paid (3,093) (2,495) -- --
- --------------------------------------------------------------------------------
Fair value of plan
assets, end of year 77,503 69,300 -- --
- --------------------------------------------------------------------------------
Funded status (12,567) (9,618) (13,537) (12,546)
Unrecognized transition
(asset) obligation (688) (792) 5,860 6,279
Unrecognized net
actuarial gain (13,858) (12,842) (2,900) (3,602)
Unrecognized prior
service cost 1,645 (97) (392) (484)
- --------------------------------------------------------------------------------
Accrued benefit cost $(25,468) $(23,349) $(10,969) $(10,353)
- --------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 8
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
QUARTERLY DATA (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $345,760 $ 363,011 $ 342,962 $385,845
Gross profit 100,025 103,177 96,167 108,551
Net income 19,858 21,244 16,177 25,271
Per share
Basic earnings .53 .57 .43 .68
Diluted earnings .52 .55 .42 .66
Dividends .100 .115 .115 .115
Market price
High 44 5/8 46 3/8 41 3/8 45 5/8
Low 33 3/4 37 1/8 29 5/8 31 3/4
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
1997 First Second Third Fourth
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $269,344 $ 280,263 $ 281,757 $314,409
Gross profit 83,205 86,321 84,692 96,775
Net income 16,677 18,349 13,828 21,218
Per share
Basic earnings .46 .50 .38 .57
Diluted earnings .45 .49 .36 .56
Dividends .088 .100 .100 .100
Market price
High 27 33 1/4 35 3/4 39 3/4
Low 23 1/4 25 3/4 30 1/2 34 5/8
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
1996 First Second Third Fourth
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $234,448 $ 238,394 $ 215,144 $243,197
Gross profit 73,338 75,104 66,371 76,183
Net income 14,852 15,137 10,049 17,124
Per share
Basic earnings .42 .43 .29 .47
Diluted earnings .42 .42 .28 .46
Dividends .078 .088 .088 .088
Market price
High 23 3/8 24 3/8 25 26
Low 19 3/4 21 1/4 22 23 3/8
- ------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
[PricewaterhouseCoopers Logo]
To the Board of Directors and Shareholders
Teleflex Incorporated
In our opinion, the consolidated financial statements appearing on pages 19
through 31 of this Annual Report present fairly, in all material respects, the
financial position of Teleflex Incorporated and its subsidiaries at December 27,
1998 and December 28, 1997 and the results of their operations and cash flows
for each of the three years in the period ended December 27, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 1999
27
<PAGE> 10
TELEFLEX INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL AND BUSINESS SEGMENT DATA
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues
Commercial $ 649,644 $ 497,366 $ 422,443
Medical 338,305 323,114 307,555
Aerospace 449,629 325,293 201,185
- ------------------------------------------------------------------------------------------
Net sales 1,437,578 1,145,773 931,183
Other income(a) -- -- --
- ------------------------------------------------------------------------------------------
Total revenues $1,437,578 $1,145,773 $ 931,183
- ------------------------------------------------------------------------------------------
Operating profit
Commercial $ 62,010 $ 61,562 $ 57,849
Medical 41,879 35,466 34,630
Aerospace 55,163 38,787 21,007
- ------------------------------------------------------------------------------------------
159,052 135,815 113,486
Less:
Interest expense, net 17,054 14,435 13,876
Corporate expenses, net of other income 17,238 14,975 12,831
- ------------------------------------------------------------------------------------------
Income before taxes 124,760 106,405 86,779
Taxes on income 42,210 36,333 29,617
- ------------------------------------------------------------------------------------------
Net income $ 82,550 $ 70,072 $ 57,162
- ------------------------------------------------------------------------------------------
Earnings per share
Basic $ 2.21 $ 1.91 $ 1.61
Diluted $ 2.15 $ 1.86 $ 1.58
Cash dividends per share $ .45 $ .39 $ .34
Net income as a percent of revenues 5.7% 6.1% 6.1%
Percent of net sales
Commercial 45% 44% 45%
Medical 24% 28% 33%
Aerospace 31% 28% 22%
Average number of common and common equivalent
shares outstanding
Basic 37,347 36,759 35,482
Diluted 38,425 37,661 36,197
Average number of employees 12,603 10,830 9,373
- ------------------------------------------------------------------------------------------
</TABLE>
[BAR CHART]
Sales by Business Segment
(in millions)
<TABLE>
<CAPTION>
Commercial Medical Aerospace Total
---------- ------- --------- -------
<S> <C> <C> <C> <C>
1988 153.2 38.0 132.4 323.6
1989 174.0 42.4 139.2 355.6
1990 162.6 115.8 162.7 441.1
1991 168.6 130.5 180.4 479.5
1992 210.4 179.4 177.3 567.1
1993 284.1 180.6 202.1 666.8
1994 356.7 253.0 203.0 812.7
1995 403.6 293.4 215.7 912.7
1996 422.4 307.6 201.2 931.2
1997 497.4 323.1 325.3 1,145.8
1998 649.7 338.3 449.6 1,437.6
</TABLE>
28
<PAGE> 11
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands, except per share and employee data)
<S> <C> <C> <C> <C> <C> <C> <C>
$403,637 $356,708 $284,106 $210,464 $168,598 $162,646 $173,957 $153,144
293,341 253,020 180,623 179,376 130,540 115,756 42,406 38,032
215,711 202,944 202,067 177,292 180,399 162,731 139,262 132,413
- ------------------------------------------------------------------------------------------------------
912,689 812,672 666,796 567,132 479,537 441,133 355,625 323,589
-- -- -- 3,206 3,472 3,080 4,441 4,634
- ------------------------------------------------------------------------------------------------------
$912,689 $812,672 $666,796 $570,338 $483,009 $444,213 $360,066 $328,223
- ------------------------------------------------------------------------------------------------------
$ 59,719 $ 53,324 $ 37,794 $ 25,754 $ 19,996 $ 22,224 $ 22,025 $ 26,794
30,237 32,386 21,486 25,463 19,900 16,183 5,782 3,755
12,683 5,367 14,906 16,100 21,722 20,781 20,711 16,548
- ------------------------------------------------------------------------------------------------------
102,639 91,077 74,186 67,317 61,618 59,188 48,518 47,097
18,632 18,361 14,466 15,482 13,765 12,401 6,886 6,225
10,407 9,725 7,410 3,185 2,519 3,880 2,395 4,493
- ------------------------------------------------------------------------------------------------------
73,600 62,991 52,310 48,650 45,334 42,907 39,237 36,379
24,730 21,795 18,624 16,638 15,527 14,340 12,440 12,370
- ------------------------------------------------------------------------------------------------------
$ 48,870 $ 41,196 $ 33,686 $ 32,012(b) $ 29,807 $ 28,567 $ 26,797 $ 24,009
- ------------------------------------------------------------------------------------------------------
$ 1.40 $ 1.20 $ .99 $ .95(b) $ .90 $ .87 $ .83 $ .75
$ 1.37 $ 1.17 $ .98 $ .93(b) $ .88 $ .87 $ .82 $ .74
$ .30 $ .26 $ .23 $ .21 $ .20 $ .18 $ .16 $ .13
5.4% 5.1% 5.1% 5.6% 6.2% 6.4% 7.4% 7.3%
44% 44% 43% 37% 35% 37% 49% 47%
32% 31% 27% 32% 27% 26% 12% 12%
24% 25% 30% 31% 38% 37% 39% 41%
34,885 34,373 33,958 33,557 33,062 32,667 32,321 31,986
35,574 35,061 34,533 34,264 33,701 32,952 32,805 32,487
9,553 8,740 7,920 6,920 6,160 5,860 5,080 4,350
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning in 1993, other income, which was insignificant, has been
reclassified as an offset to interest expense and corporate expenses.
(b) Excludes an increase in net income of $860, or $.03 per share as a result
of a change in accounting for income taxes.
[BAR CHART]
Operating Profit by Business Segment
(in millions)
<TABLE>
<CAPTION>
Commercial Medical Aerospace Total
---------- ------- --------- -------
<S> <C> <C> <C> <C>
1988 26.8 3.8 16.5 47.1
1989 22.0 5.8 20.7 48.5
1990 22.2 16.2 20.8 59.2
1991 20.0 19.9 21.7 61.6
1992 25.7 25.5 16.1 67.3
1993 37.8 21.5 14.9 74.2
1994 53.3 32.4 5.4 91.1
1995 59.7 30.2 12.7 102.6
1996 57.9 34.6 21.0 113.5
1997 61.6 35.5 38.8 135.8
1998 62.0 41.9 55.2 159.1
</TABLE>
29
<PAGE> 12
TELEFLEX INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL AND BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL POSITION
Identifiable assets
Commercial $ 405,347 $ 351,345 $ 227,594
Medical 361,282 333,698 320,699
Aerospace 324,532 276,708 194,305
Corporate 124,756 117,414 115,256
- ------------------------------------------------------------------------------------
Total assets $1,215,917 $1,079,165 $ 857,854
- ------------------------------------------------------------------------------------
Capital expenditures
Commercial $ 26,243 $ 22,570 $ 12,821
Medical $ 13,943 $ 10,611 $ 10,421
Aerospace $ 28,561 $ 40,992 $ 16,767
Depreciation and amortization
Commercial $ 23,353 $ 14,335 $ 11,907
Medical $ 18,044 $ 18,459 $ 16,267
Aerospace $ 17,852 $ 14,440 $ 9,827
Long-term borrowings $ 275,581 $ 237,562 $ 195,945
Shareholders' equity $ 534,450 $ 463,753 $ 409,176
Working capital $ 305,463 $ 271,570 $ 269,355
Current ratio 2.0 1.9 2.4
Book value per share $ 14.21 $ 12.49 $ 11.30
Return on average shareholders' equity 16.5% 16.1% 15.0%
- ------------------------------------------------------------------------------------
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
Stock Price
Low High
--- ----
<S> <C> <C>
1988 7.13 10.21
1989 9.38 12.92
1990 8.33 12.08
1991 9.81 17.19
1992 12.50 19.75
1993 13.88 19.13
1994 15.88 20.13
1995 19.00 22.88
1996 19.75 26.00
1997 23.25 39.75
1998 29.63 46.38
</TABLE>
30
<PAGE> 13
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
$201,808 $184,971 $158,206 $142,041 $101,187 $ 84,678 $ 90,557 $ 83,601
331,349 311,547 266,239 206,562 194,609 147,954 125,635 34,819
183,636 188,348 202,130 142,523 141,104 143,419 130,762 107,524
68,378 25,923 14,001 43,805 40,793 49,049 19,708 38,172
- ----------------------------------------------------------------------------------------------------
$785,171 $710,789 $640,576 $534,931 $477,693 $425,100 $366,662 $264,116
- ----------------------------------------------------------------------------------------------------
$ 15,445 $ 13,489 $ 7,967 $ 7,386 $ 7,505 $ 5,581 $ 5,507 $ 8,880
$ 12,107 $ 7,029 $ 7,361 $ 5,316 $ 7,138 $ 4,236 $ 2,373 $ 960
$ 2,794 $ 4,538 $ 8,865 $ 6,384 $ 5,585 $ 7,166 $ 10,701 $ 5,228
$ 11,446 $ 9,930 $ 9,251 $ 6,262 $ 5,633 $ 5,369 $ 4,715 $ 3,675
$ 15,087 $ 11,694 $ 8,030 $ 6,505 $ 4,725 $ 3,999 $ 1,693 $ 1,455
$ 10,471 $ 10,771 $ 10,176 $ 8,002 $ 7,366 $ 7,024 $ 5,777 $ 5,556
$196,844 $190,499 $183,504 $134,600 $119,370 $112,941 $106,128 $ 57,104
$355,364 $309,024 $269,790 $240,467 $211,702 $187,875 $160,038 $136,328
$252,651 $220,544 $171,397 $166,803 $131,589 $133,840 $112,325 $ 98,217
2.3 2.3 2.1 2.4 2.1 2.3 2.4 2.6
$ 10.13 $ 8.94 $ 7.90 $ 7.12 $ 6.37 $ 5.72 $ 4.94 $ 4.25
14.7% 14.2% 13.2% 14.2% 14.9% 16.4% 18.1% 19.1%
- ----------------------------------------------------------------------------------------------------
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
Domestic/Foreign Sales
(in millions)
Foreign Domestic Total
------- -------- -----
<S> <C> <C> <C>
1988 52,733 270,856 323,589
1989 62,932 292,693 355,625
1990 131,805 309,328 441,133
1991 153,532 326,005 479,537
1992 172,618 394,514 567,132
1993 187,259 479,537 666,796
1994 221,145 591,527 812,672
1995 283,892 628,797 912,689
1996 314,141 617,042 931,183
1997 373,437 772,336 1,145,773
1998 571,587 865,991 1,437,578
</TABLE>
31
<PAGE> 14
TELEFLEX INCORPORATED AND SUBSIDIARIES
1998 FINANCIAL REVIEW
OVERVIEW
The company's major financial objectives are to achieve a 15% to 20% annual
growth rate in revenues and net income, to generate a 20% return on average
shareholders' equity and to pay dividends of 20% of trailing twelve months
earnings. Results for 1998 exceeded these growth goals as revenues and net
income grew by 25% and 18%, respectively. Over the last five years revenues have
grown by a compounded rate of 17% and net income by 20%. The 1998 return on
average shareholders' equity was 17% and has improved in each of the last five
years. Finally, the company has paid dividends of 20% or more of trailing twelve
months earnings since the first cash dividend payment was made in 1977.
The company is committed to maintaining a balance among its three
segments: Commercial, Medical, and Aerospace. Balance among the three segments
reduces the company's risk from changes in the business cycle of any one segment
thus assisting the company in consistently achieving its growth objectives. It
also gives the company the ability to invest funds at the bottom of a segment's
operating cycle and provides a broader base of markets in which to grow. Balance
is also maintained within the individual operating segments through either
geographical, customer or market diversification. As a result, despite cyclical
downturns in each of the segments the company's total operating profit has
increased in each of the last five years.
The company intends to achieve its growth objectives internally through
both development of new products and new markets for existing products and
externally, primarily through acquisitions. It is expected that over time,
approximately half the growth will be achieved through expansion of core product
lines and half will be derived externally. Over the past five years the
company's internal growth has accounted for one-half of its overall growth.
During the same time the company has invested approximately $370 million for
acquisitions which have accounted for the other half of the revenue increase.
During 1997 and 1998, the company purchased businesses with annualized sales of
approximately $260 million, $170 million of which is included in 1998 revenues.
These acquisitions fit strategically with the company's businesses and bring new
technologies, capabilities and market opportunities that will supplement future
growth.
Acquisitions, while adding initially to revenues, generally do not
contribute proportionately to earnings in the early years. In these years,
earnings are generally reduced by up-front costs such as interest, depreciation
and amortization, and, in many instances, the expenses of integrating a newly
acquired business into an existing operation. Additionally, many of the
acquisitions include new technologies and products which require incremental
investment to enhance their future growth prospects.
[BAR CHART]
<TABLE>
<CAPTION>
Revenues
(in millions)
-------------
<S> <C>
1994 812.7
1995 912.7
1996 931.2
1997 1,145.8
1998 1,437.6
</TABLE>
The company has maintained a conservative capital structure with long-term
debt ranging from 30% to 40% of total capitalization. This provides the
flexibility to increase borrowings should growth opportunities arise. Under
these circumstances it is conceivable that debt may increase to as much as 50%
of capitalization for a period of time. The use of debt financing enables the
company to maintain a lower cost of capital thus further enhancing value for
shareholders. The company finances foreign operations and acquisitions primarily
in their local currencies, thus reducing exposure to exchange rate fluctuations.
As a result of these natural hedges, approximately 70% of the company's total
borrowings are denominated in currencies other than the U.S. dollar. The
introduction of the Euro reduces the number of currencies to which the company
is exposed which could add volatility to reported financial results.
Historically, operations have generated sufficient cash flow to finance
the company's operating requirements while borrowings have been incurred largely
to finance acquisitions. Over the past five years cash flow from operations has
totaled over $400 million. This operating cash flow is reinvested in the
company's core businesses, provides for the payment of dividends and enables the
company to continue to upgrade and expand its plant and equipment. The company,
while not particularly capital intensive, spends approximately 4% of sales
annually on plant and equipment.
32
<PAGE> 15
RESULTS OF OPERATIONS
1998 VS. 1997
Revenues gained 25% in 1998 to $1,437.6 million from $1,145.8 million in 1997
resulting from increases at each of the company's three segments. Acquisitions
accounted for 60% of the company's increase in revenue. For 1998 the Commercial,
Medical and Aerospace segments accounted for 45%, 24% and 31% of the company's
net sales, respectively. Foreign operations comprised 40% of the company's
revenues, increased 53% over 1997 and were not significantly affected by changes
in foreign currency exchange rates. The increase in foreign sales resulted
primarily from the acquisition of a manufacturer of automotive driver control
systems.
Gross profit margin declined in 1998 to 28.4% from 30.6% in 1997 despite
increases in the Medical and Aerospace segments. A reduction in the proportion
of sales from the Medical Segment, which has a higher gross margin compared with
the other segments; and, a lower contribution to gross margin from recent
acquisitions in the Commercial Segment contributed to the decrease. Operating
expenses as a percentage of sales improved to 18.5% from 20.1% in 1997 resulting
from reductions in the Commercial and Medical segments. In addition, a decline
in the proportion of sales from the Medical Segment contributed to lowering the
operating expense percentage.
Operating profit increased 17% in 1998 to $159.1 million from $135.8
million in 1997 while operating profit as a percentage of sales (operating
margin) declined to 11.1% from 11.9%. For 1998 the Commercial, Medical and
Aerospace segments represented 39%, 26% and 35% of the company's operating
profit, respectively. All three segments reported increases in operating profit
with Aerospace contributing the largest gain. The decrease in operating margin
resulted from the decline in the Commercial Segment which offset the increases
in Medical and Aerospace.
Net income in 1998 increased 18% to $82.6 million and diluted earnings per
share increased 16% to $2.15. Basic earnings per share increased 16% to $2.21.
1997 VS. 1996
Revenues increased 23% in 1997 to $1,145.8 million from $931.2 million in 1996.
The increase was attributable to gains in each of the company's three segments.
Acquisitions accounted for approximately 40% of the growth. For 1997 the
Commercial, Medical and Aerospace segments comprised 44%, 28% and 28% of the
company's net sales, respectively. Foreign operations represented 33% of the
company's revenues, increased 19% over 1996 and were affected slightly by
declines in foreign currency exchange rates.
Both gross profit margin and selling, engineering and administrative
expenses as a percent of sales decreased slightly in 1997. This was caused by
the lower contribution of sales from the Medical Segment which has higher gross
margin and higher selling expenses relative to the other two segments.
Operating profit increased 20% in 1997 to $135.8 million from $113.5
million in 1996. All three segments reported gains with the largest coming from
Aerospace. For 1997 the Commercial, Medical and Aerospace segments represented
45%, 26% and 29% of the company's operating profit, respectively. Operating
margin remained unchanged at approximately 12% as an increase in the Aerospace
Segment offset declines in Commercial and to a lesser extent, Medical.
Net income in 1997 increased 23% to $70.1 million while diluted earnings
per share increased 18% to $1.86. Basic earnings per share increased 19% to
$1.91.
INTEREST EXPENSE AND INCOME TAX EXPENSE
Interest expense increased in 1998 as a result of additional borrowings incurred
at the end of 1997 to finance acquisitions which offset the effect of lower
interest rates. In 1997 interest expense increased as reduced interest rates
were offset by the effect of lower invested cash balances. Interest expense as a
percent of sales decreased in 1998 to 1.2% from 1.3% in 1997. The effective
income tax rate declined to 33.8% in 1998, compared with 34.1% in both 1997 and
1996. The mix of the company's foreign taxable income was comparable in 1997 and
1996 while in 1998 a higher proportion of income was earned in countries with
relatively lower income tax rates.
[BAR CHART]
<TABLE>
<CAPTION>
Net Income
(in millions)
-------------
<S> <C>
1994 41.2
1995 48.9
1996 57.2
1997 70.1
1998 82.6
</TABLE>
33
<PAGE> 16
TELEFLEX INCORPORATED AND SUBSIDIARIES
1998 FINANCIAL REVIEW (CONTINUED)
COMMERCIAL SEGMENT
The Commercial Segment designs and manufactures proprietary mechanical and
electrical controls for the automotive market; mechanical, electrical and
hydraulic controls, and electronic products for the pleasure marine market; and
proprietary products for the fluid transfer and outdoor power equipment markets.
Products in the Commercial Segment generally are less complex and are
produced in higher unit volume than those of the company's other two segments.
They are manufactured both for general distribution as well as custom fabricated
to meet individual customer needs. Consumer spending patterns generally
influence the market trends for these products.
1998 VS. 1997
Sales in the Commercial Segment increased 31% in 1998 from $497.4 million to
$649.6 million resulting from increases in all three product lines, Automotive,
Marine and Industrial. The increase in the Automotive product line was primarily
due to acquisitions including a manufacturer of automotive driver control
systems. The North American sales growth rate was slower from the effects of the
General Motors strike. Within the Marine product line, increases in sales of
non-marine products offset a decline in sales of marine electronics products.
Additional sales of light duty cable and flexible fluoroplastic hose resulted in
the Industrial product line gain.
Operating profit increased 1% while operating margin declined to 10% in
1998 from 12% in 1997. Increases in operating profit and margin in the
Industrial product line were offset by declines in Automotive while Marine
remained unchanged from the prior year. The declines in Automotive were due to
lower margins of acquisitions, expenses related to new products such as the
adjustable pedal and costs associated with the General Motors strike. The strike
reduced operating profit by approximately $3.4 million, or 5 cents per share.
Within the Marine product line, higher operating profits and margins stemming
from increased volume of non-marine products were offset by declines from marine
electronics products. The Industrial product line increases resulted primarily
from the additional volume of flexible fluoroplastic hose.
Assets increased in 1998 due primarily to acquisitions in the Automotive
product line. Return on average assets declined from 21% in 1997 to 16% in 1998
resulting from the combination of increased assets and lower operating returns
from acquisitions.
[BAR CHART]
<TABLE>
<CAPTION>
Operating Profit
(in millions)
<S> <C>
1994 91.1
1995 102.6
1996 113.5
1997 135.8
1998 159.1
</TABLE>
1997 VS. 1996
Sales in the Commercial Segment increased 18% in 1997 to $497.4 million from
$422.4 million in 1996. All three product lines, Automotive, Marine, and
Industrial, reported sales gains with the largest increase coming from the
Automotive product line. Acquisitions in the Automotive product line accounted
for one-third of the increase in Commercial Segment sales and approximately
two-thirds of the Automotive sales growth. The remainder of the gain in the
Automotive product line resulted from increased penetration of the North
American market, primarily in light duty trucks. Within the Marine product line,
sales of marine steering systems and increased sales to non-marine customers,
such as off-road manufacturers, resulted in the increase. Sales in the
Industrial product line benefited from a strong outdoor power equipment market
and from new applications for the automotive market.
Operating profit rose 6% in 1997 to $61.6 million from $57.8 million in
1996 as increases in both the Automotive and Industrial product lines offset a
decline in Marine. The increases in Automotive and Industrial were primarily
related to volume gains while the decline in Marine stemmed from lower margin
sales to non-marine markets and costs associated with the relocation of an
electrical instrumentation facility. Operating margin decreased from 14% in 1996
to 12% in 1997 as a result of declines in Marine and Automotive. The margin was
higher in the Industrial product line as two customer-focused manufacturing
facilities, initiated in 1996, came on stream. Marine operating margins
34
<PAGE> 17
declined as a result of the plant relocation and increased engineering and
development expenses related to the new non-marine products. Automotive
operating margins declined due to lower margins realized at newly-acquired
businesses, increased selling expenses to accelerate expansion into the European
market and higher engineering expenses for the development of new products.
Investment in total assets in this segment grew by over $100 million in
1997 primarily as a result of the United Parts acquisition. Return on average
assets declined in 1997 to 21% from 27% in 1996 as a result of the acquisition
of United Parts in December 1997.
MEDICAL SEGMENT
The Medical Segment manufactures and distributes a broad range of invasive
disposable and reusable devices for the urology, gastroenterology,
anesthesiology and respiratory care markets worldwide. It also designs and
manufactures a variety of surgical devices, closure systems and provides
instrument management services.
Products in the Medical Segment generally are required to meet exacting
standards of performance and have relatively longer product life cycles.
External economic influences on sales relate primarily to spending patterns in
the worldwide medical devices and supplies market. The Hospital Supply product
line conducts its business primarily outside the United States and accordingly,
its sales and profits are subject to changes from foreign exchange rate
movements. The Surgical Devices product line operates mostly within the United
States.
1998 VS. 1997
In 1998 Medical Segment sales increased 5% to $338.3 million from $323.1 million
resulting primarily from gains in the Surgical Devices product line which offset
a decline in Hospital Supply due to weaker foreign currencies. The increase in
Surgical Devices resulted from additional European sales and from growth of
instrument management services aided by an acquisition.
Operating profit increased 18% in 1998 to $41.9 million from $35.5 million
in 1997 and operating margin improved to 12% from 11%. The increases in
operating profit and operating margin are the result of gains in both Hospital
Supply and Surgical Devices. The 1998 increases in Surgical Devices are due to
unusually high expenses in the prior year from realigning sales and
manufacturing by product line. The increases in Hospital Supply are the result
of increased sales of higher margin products.
Assets increased due to investment in instrument management services
including an acquisition and increases in accounts receivable and inventory
related to volume. Return on average assets improved from 11% to 12% resulting
from the increase in operating profit which more than offset the increase in
assets.
1997 VS. 1996
In 1997 the Medical Segment sales increased by 5% to $323.1 million from $307.6
million in 1996. The sales growth was equally split between the Hospital Supply
and Surgical Devices product lines. New products contributed to the growth in
the Hospital Supply product line while a first quarter acquisition of a small
ligation clip manufacturer was the primary cause of the increase in Surgical
Devices. The growth rate for sales in Hospital Supply, which is European based,
was reduced by weaker foreign currencies.
Operating profit rose 2% in 1997 to $35.5 million from $34.6 million in
1996 while operating margin remained relatively constant. The gain in
profitability in Hospital Supply due to volume increases, was offset by a
decline in the Surgical Devices product line. The decline in Surgical Devices
operating profit and margin is the result of costs associated with the
realignment of the manufacturing facilities and sales forces into three market
units; instruments, closure, and service.
Assets increased in 1997 as a result of the acquisition which offset the
effects of weaker foreign currencies. Return on average assets in 1997 remained
unchanged at 11% resulting from an operating profit and an average asset base
which remained relatively unchanged.
[BAR CHART]
<TABLE>
<CAPTION>
Capital Expenditures
(in millions)
Commercial Medical Aerospace Total
---------- ------- --------- -----
<S> <C> <C> <C> <C>
1994 13.5 7.1 4.5 25.1
1995 15.4 12.1 2.8 30.3
1996 12.8 10.4 16.8 40.0
1997 22.6 10.6 41.0 74.2
1998 26.3 13.9 28.6 68.8
</TABLE>
35
<PAGE> 18
TELEFLEX INCORPORATED AND SUBSIDIARIES
1998 FINANCIAL REVIEW (CONTINUED)
AEROSPACE SEGMENT
The Aerospace Segment serves the commercial aerospace and turbine engine
markets. Its businesses design and manufacture precision controls and cargo
systems for aviation; provide coatings, repair services and manufactured
components for users of both flight and ground-based turbine engines. Sales are
both to original equipment manufacturers and the aftermarket.
These products and services, many of which are proprietary, require a high
degree of engineering sophistication, and often are custom-designed. External
economic influences on these products and services relate primarily to spending
patterns in the worldwide aerospace industry.
1998 VS. 1997
Sales in the Aerospace Segment increased 38% in 1998 to $449.6 million from
$325.3 million. Each of the Segment's product lines, cargo systems, coatings,
repair services and manufactured turbine components, gained. The largest
contribution to the increase came from manufactured turbine components which
gained from the continued strength of the aerospace market. In addition, growth
in repair services from the newly completed Singapore plant and in coatings from
increased sales to the industrial gas turbine market contributed to the gain.
Operating profit in 1998 increased 42% to $55.2 million from $38.8 million
and operating margin improved slightly to 12.3% from 11.9%. The operating profit
gain was primarily the result of additional volume in manufactured turbine
components. The volume gain also contributed to the improved operating margin.
The increase in operating margin in this Segment, however, was diluted by higher
sales of repair services which distributes approximately half of its profits to
a joint venture partner.
The increase in assets in 1998 was due to additional plant and equipment
and working capital investments made to accommodate the continued growth in this
segment during the year. Return on average assets increased from 16% to 18% as
the increase in operating profit outpaced the increase in assets during the
year.
1997 VS. 1996
Sales in the Aerospace Segment grew an exceptional 62% in 1997 to $325.3 million
from $201.2 million the prior year. Approximately one-third of the Segment's
growth was the result of acquisitions while the remainder came from existing
products which benefited from the robust aerospace market. All product lines
contributed. The majority of the growth came from turbine components, including
the results of an acquisition and the internal growth in the repairs product
line. During 1997 Aerospace made two small acquisitions. The first extended the
cargo systems product line to narrow-body aircraft while the second helped
further diversify the coatings product line into the ground turbine repairs
market.
Operating profit grew from $21.0 million in 1996 to $38.8 million in 1997,
an increase of 85%. Operating margin improved from a little over 10% in 1996 to
nearly 12% in 1997. The increase in both profit and margin was principally the
result of volume increases in the turbine component and repair services product
lines.
Including acquisitions, assets increased in 1997 by more than $80 million.
Capital expenditures increased substantially in order to support the higher
level of expected business activity, including construction of a repair facility
in Singapore. Return on average assets improved from 11% in 1996 to 16% in 1997
due to the significant growth in operating profit during 1997.
[BAR CHART]
<TABLE>
<CAPTION>
Cash Flow from Operations
(in millions)
<S> <C>
1994 57.7
1995 70.8
1996 71.6
1997 80.8
1998 131.6
</TABLE>
36
<PAGE> 19
LIQUIDITY, MARKET RISK AND CAPITAL RESOURCES
The company continued to generate high levels of cash from operations. In 1998
cash flows from operating activities grew to $131.6 million compared to $80.8
million in 1997 and $71.6 million in 1996. The increase in 1998 resulted from
higher net income and non-cash depreciation and amortization and, from
improvements in working capital. The increase in 1997 was due to higher net
income and depreciation and amortization offset by working capital requirements
related to incremental sales volume. In addition to the cash generated from
operations the company has approximately $200 million in committed and
uncommitted unused lines of credit available which provide the ability to pursue
strategic growth opportunities. Total borrowings for the company increased $14
million in 1998 while long-term debt to total capitalization was 34% in both
1997 and 1998. The increase in long-term debt resulted from borrowings incurred
to complete construction of the Singapore facility, foreign acquisition
financing and foreign currency exchange rate changes which were offset by
repayments. The most significant investment of cash for 1997 was payments for
businesses acquired. Cash payments in 1997 of nearly $100 million related
primarily to the acquisition of Driver Control Systems which was financed
principally with new borrowings. During the first quarter of 1998 certain
acquired non-strategic assets were sold for $36 million in cash and the related
borrowings reduced. Approximately 70% of the company's total borrowings of $367
million are denominated in currencies other than the US dollar, principally
Euro, providing a natural hedge against fluctuations in the value of assets
denominated in foreign currencies.
In addition to the natural hedge positions for translation risk, the
company occasionally uses forward rate contracts to manage foreign currency
transaction exposure and interest rate caps and swaps for exposure to interest
rate changes. The company does not enter into these arrangements for trading
purposes, but rather to limit the impact of movements in financial markets on
its cash flows. The use of these derivative instruments, which are contracted
only with financial institutions having high investment grade credit ratings,
were not significant at December 27, 1998.
[BAR CHART]
<TABLE>
<CAPTION>
Dividends per Share
<S> <C>
1994 0.26
1995 0.30
1996 0.34
1997 0.39
1998 0.45
</TABLE>
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which will be effective for the company in the year
2000. Under the provisions of this statement all derivative financial
instruments will be recorded on the balance sheet at fair market value.
Subsequent changes in value will be recognized in the statement of income or as
part of comprehensive income. Based on the company's current use of derivative
instruments and hedging activities, the new statement is not expected to have a
material effect on the company's consolidated balance sheet or statement of
income.
The company's financial condition remains strong. The company believes
that cash flows from operations and access to additional funds through available
credit facilities provide adequate resources to fund operating requirements,
capital expenditures and additional acquisition opportunities to meet its
strategic and financial goals.
37
<PAGE> 20
TELEFLEX INCORPORATED AND SUBSIDIARIES
1998 FINANCIAL REVIEW (CONTINUED)
[BAR CHART]
<TABLE>
<CAPTION>
Capitalization
(in millions)
Equity LTD Total
------ --- -----
<S> <C> <C> <C>
1994 309.0 190.5 499.5
1995 355.4 196.8 552.2
1996 409.2 195.9 605.1
1997 463.8 237.6 701.4
1998 534.5 275.6 810.1
</TABLE>
SHAREHOLDERS' EQUITY
Shareholders' Equity increased to $534.5 million at the end of 1998 from $463.8
million at the end of 1997. Book value per share increased to $14.21 at December
27, 1998 compared to $12.49 at December 28, 1997. During 1998 the dividend per
share was increased 15% to $.45 per share from $.39 per share in 1997. Return on
shareholders' equity increased in 1998 to 17% from 16% in 1997.
OTHER MATTERS
ENVIRONMENTAL
The company is subject to numerous federal, state and local environmental laws
and regulations including the Resource Conservation and Recovery Act,
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Air Act and, the Clean Water Act. Environmental programs are in place throughout
the company which include training, auditing and monitoring to ensure compliance
with such laws and regulations. In addition, the company has been named as a
Potentially Responsible Party by the Environmental Protection Agency at various
sites throughout the country. Environmental costs, including liabilities
associated with such sites, and the costs of complying with existing
environmental regulations are not expected to result in a liability material to
the company's consolidated financial position or results of operations.
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 December
27, 1998 approximately two-thirds of the activities, 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.
38
<PAGE> 21
Costs
The aggregate effort directed towards year 2000 remediation is estimated to be
approximately $10 to $12 million including the capitalized cost of certain
computer hardware and software systems and the redirected effort of the
company's existing resources. Approximately $7 million has been spent as of
December 27, 1998 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 eighty
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.
39
<PAGE> 1
EXHIBIT 21
TELEFLEX INCORPORATED
SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION PARENT PERCENTAGE
OF INCORP.
<S> <C> <C> <C>
1950 Williams Drive, LLC Delaware TFX Equities 100
924593 Ontario Limited Ontario Teleflex 81 (1)
Access Medical S.A. France TFX International S.A. 100
AeroForge Corporation Indiana TFX Equities 100
Airfoil Management Company Delaware TFX Equities 100
Airfoil Management Limited UK Sermatech (U.K.) Limited 100
Airfoil Technologies (Florida), Inc. Delaware Aviation Product Support, Inc. 51 (2)
Airfoil Technologies International LLC Delaware TFX Equities 51 (3)
Airfoil Technologies Singapore PTE LTD Singapore Airfoil Technologies Internat'l 100
American General Aircraft Holding Co., Inc. Delaware Teleflex 74
Asept Inmed S.A. France TFX International S.A. 100
Asid Bonz GmbH Germany Willy Rusch AG 100
Astraflex Limited UK TFX Group Ltd. 100
Aunic Engineering Limited UK Sermatech (U.K.) Limited 100
Aviation Product Support, Inc. Delaware TFX Equities 100
Avtech Systems, Inc. Utah Telair International (CA) 100
Bavaria Cargo Technologie GmbH Germany Telair International GmbH 100
Blue Armor International, Ltd. Maryland Sermatech 100
Capro de Mexico, S.A. de C.V. Mexico TFX International Corp. 99.99 (4)
Capro Inc. Texas Teleflex 100
CCT De'Couper Industries, Inc. Michigan Comcorp Technologies, Inc. 100
CCT Plymouth Stamping Company Michigan Comcorp Technologies, Inc. 100
CCT Thomas Die & Stamping, Inc. Michigan CCT De'Couper Industries, Inc. 100
Cepco Precision Company of Canada, Inc. Canada Sermatech Engineering 100
Cetrek Engineering Ltd. UK Cetrek Ltd. 100
Cetrek Inc. Massachusetts Teleflex 100
Cetrek Limited UK TFX International Ltd. 100
Chemtronics International Ltd. UK Sermatech (U.K.) Limited 100
Claes Johansson Automotive AB Sweden UPDC Systems AB 100
Claes Johansson Components AB Sweden Claes Johansson Automotive AB 100
Comcorp Inc. Michigan Teleflex 100
Comcorp Technologies, Inc. Michigan Teleflex 100
Comfort Pedals, Inc. Michigan Comcorp, Inc. 100
</TABLE>
Page 1
<PAGE> 2
TELEFLEX INCORPORATED
SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
ComPort Automotive B.V. The Netherlands United Parts Group N.V. 100
Endoscopy Specialists Incorporated Delaware Medical Sterilization, Inc. 100
Entech, Inc. New Jersey TFX Equities 100
Flexible Flyer, Inc. Delaware Teleflex 100
Franklin Medical Ltd. UK TFX Group Ltd. 100
G-Tel Aviation Limited UK Sermatech (U.K.) Limited 50
Gamut Technology, Inc. Texas Capro 100
Gas-Path Technology, Inc. Delaware Teleflex 100
Gator-Gard Incorporated Delaware Sermatech 100
Inmed (Malaysia) Holdings Sdn. Berhad Malaysia Willy Rusch AG 100
Inmed Acquisition, Inc. Delaware Teleflex 100 (5)
Inmed Corporation (6) Georgia Inmed Acquisition 100
Inmed Corporation (U.K.) Ltd. UK TFX Group Ltd. 100
Kaufman Industries Limited Maryland Sermatech 100
Kordial S.A. France TFX International S.A. 100
Lehr Precision, Inc. Ohio Teleflex 100
Lipac Liebinzeller Verpackungs-GmbH Germany Willy Rusch AG 100
Mal Tool & Engineering Limited UK TFX Group Ltd. 100
Mal Tool & Engineering S.A.R.L. France TFX International S.A. 100
Meddig Medizintechnik Vertriebs-GmbH Germany Rusch G B 87.5
Medical Service Vertriebs-GmbH Germany Willy Rusch AG 100
Medical Sterilization, Inc. New York TFX Equities 85
Norland Plastics Company Delaware TFX Equities 100
Phosphor Products Co. Limited UK TFX International Ltd. 100
Pilling Weck Chiurgische Produkte GmbH Germany TFX Holding GmbH 100
Pilling Weck Incorporated Delaware Teleflex 100
Pilling Weck Incorporated Pennsylvania Teleflex 100
Pilling Weck (Asia) PTE Ltd. (7) Singapore Pilling Weck (PA) 99.99
Pilling Weck (Canada)Inc. Canada 924593 Ontario 50.5 (8)
Pilling Weck n.v. Belgium TFX International S.A. 100
Primaklimat AB Sweden Claes Johansson Components AB 100
Rigel Compasses Limited UK TFX International Ltd. 100
Rusch Asia Pacific Sdn. Berhad Malaysia Inmed (Malaysia) Holdings 100
Rusch AVT Medical Private Limited India TFX Equities 50
Rusch (UK) Ltd. UK TFX Group Ltd. 100
Rusch Austria Ges.mbH Austria Teleflex 100
</TABLE>
Page 2
<PAGE> 3
TELEFLEX INCORPORATED
SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
Rusch France S.A.R.L. France Rusch G B 100
Rusch Inc. Delaware Rusch G B 100
Rusch Italia S.A.R.L. Italy Willy Rusch AG 100
Rusch Manufacturing (UK) Ltd. UK TFX Group Ltd. 100
Rusch Manufacturing Sdn. Berhad Malaysia Inmed (Malaysia) Holdings 96.5
Rusch Medical, S.A. (9) France TFX International S.A. 100
Rusch Mexico, S.A. de C.V. Mexico Teleflex 99 (10)
Rusch Sdn. Berhad Malaysia Inmed (Malaysia) Holdings 96.5
Rusch Uruguay Ltda. Uruguay Rusch G B 60
Rusch-Pilling Limited Canada Willy Rusch AG 50.5 (11)
Rusch-Pilling S.A. France TFX International S.A. 100
S. Asferg Hospitalsartikler ApS Denmark Teleflex 100
Scandinavian Bellyloading Company AB Sweden Telair International GmbH 100
Scandinavian Bellyloading Internat'l, Inc. California Teleflex 100
Sermatech (Canada) Inc. Canada 924593 Ontario 100
Sermatech Engineering Group, Inc. Delaware Teleflex 100
Sermatech (Germany) GmbH Germany TFX Holding GmbH 100
Sermatech International Incorporated PA Teleflex 100
Sermatech Repair Services Limited UK Airfoil Technologies Internat'l 60 (12)
Sermatech (U.K.) Limited UK TFX Group Ltd. 100
SermeTel Technical Services (STS) GmbH Germany TFX Holding GmbH 100
Simal S.A. Belgium TFX International S.A. 100
SSI Surgical Services, Inc. Delaware Medical Sterilization, Inc. 100
Technology Holding Company Delaware TFX Equities 100
Technology Holding Company II Delaware Technology Holding Company III 100
Technology Holding Company III Delaware Techsonic Industries, Inc. 66 (13)
Techsonic Industries, Inc. Alabama Teleflex 100
Telair International Electronic Systems GmbH (14) Germany Telair International Services 100
Telair International GmbH Germany TFX Holding GmbH 100
Telair International Incorporated(15) California Teleflex 100
Telair International Incorporated Delaware Teleflex 100
Telair International Services GmbH (16) Germany Bavaria Cargo Technologie 100
Telair International Services PTE LTD Singapore Telair 70.5 (17)
Teleflex (Canada) Limited Canada(B.C.) 924593 Ontario 100
Teleflex Automotive de Mexico S.A. de C.V. Mexico TFX Equities 99.9 (18)
Teleflex Automotive Manufacturing
</TABLE>
Page 3
<PAGE> 4
TELEFLEX INCORPORATED
SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
Corporation Delaware Teleflex 100
Teleflex Control Systems, Inc. Pennsylvania Teleflex 100
Teleflex Fluid Systems, Inc. Connecticut Teleflex 100
Teleflex Machine Products, Inc. Delaware Teleflex Fluid 100
TFX Automotive LTD (19) UK TFX Group Ltd. 100
TFX Engineering Ltd. Bermuda Teleflex 100
TFX Equities Incorporated Delaware Teleflex 100
TFX Foreign Sales Corporation Barbados TFX International Corp. 100
TFX Group Limited UK TFX International Corp. 100
TFX Holding GmbH Germany Teleflex 57 (20)
TFX International Corporation Delaware Teleflex 100
TFX International Limited UK TFX Group Ltd. 100
TFX International S. A. France Teleflex 100
TFX Marine Incorporated Delaware Teleflex 100
TFX Medical Incorporated Delaware Teleflex 100
TFX Medical Wire Products, Inc. Delaware TFX Equities 100
TFX Scandinavia AB (21) Sweden Teleflex 100
The ISPA Company Maryland Sermatech 100
Top Surgical GmbH Germany PW Chiurgische Produkte GmbH 100
United Parts Automotive Engineering GmbH Germany UPDC Systems (Holding) GmbH 100
United Parts Driver's Control Systems AB Sweden United Parts Group N.V. 100
United Parts Driver Control Systems B.V. The Netherlands United Parts Group N.V. 100
United Parts Driver Control Systems (UK) Ltd. UK TFX Group Ltd. 100
United Parts Driver Control Systems (Holding) GmbH Germany United Parts Group N.V. 94 (22)
United Parts de Mexico SA de CV Mexico United Parts Group N.V. 99.998 (23)
United Parts Group N.V. The Netherlands TFX Holding GmbH 100
United Parts FHS Automobile Systeme GmbH Germany UPDC Systems (Holding) GmbH 99.9 (24)
United Parts Slovakia sro Slovakia UPDC Systems BV 100
Victor Huber GmbH Germany Teleflex 100
Weck Closure Systems LLC Delaware Pilling Weck Incorporated (DE) 81 (25)
Willy Rusch AG Germany TFX Holding GmbH 100
Willy Rusch Grundstucks und
Beteiligungs AG ("Rusch G B") Germany Willy Rusch AG 99.8 (26)
</TABLE>
1. 14% owned by Sermatech and 5% owned by Pilling Weck (PA).
Page 4
<PAGE> 5
TELEFLEX INCORPORATED
SUBSIDIARIES
2. 49% owned by Sermatech International Incorporated.
3. 49% owned by General Electric Company
4. One share (.002%) is owned by TFX Equities
5. Except for nominee shares.
6. Trades under name "Rusch Inc."
7. Formerly Rusch-Pilling (Asia) PTE LTD.
8. 49.5% owned by Rusch G B.
9. Formerly Europe Medical, S.A.
10. 1% owned by Rusch Inc.
11. 49.5% owned by 924593 Ontario.
12. 40% owned by TFX Equities.
13. 34% owned by ten other subsidiary companies.
14. Formerly Bavaria Avionik Technologie GmbH.
15. Formerly The Talley Corporation. Trades under name "Teleflex Control
Systems."
16. Formerly Telair Cargo Electronic Systems GmbH.
17. 29.5% owned by TPA PTE LTD & Mr. Chan.
18. One share (.001%) is owned by TFX International Corporation
19. Formerly S.J. Clark (Cables) Limited. Trades under name "Clarks Cables".
20. 22% owned by Inmed Corporation, 13% by Telair International Incorporated,
and 8% by Sermatech
21. Formerly TX Controls AB.
22. 6% owned by Compart Automotive B.V.
23. 0.002% owned by Compart Automotive B.V.
24. 0.1% owned by Arminium Treuhand.
25. 19% owned by Horizon Surgical Incorporated
26. Two shares (.2%) are owned by Inmed Corporation.
Page 5
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned Directors of Teleflex Incorporated, a Delaware
corporation (the "Company"), hereby appoints Lennox K. Black, Harold L. Zuber,
Jr. and Steven K. Chance, and each of them, with full power of substitution, to
act as his attorney-in-fact to execute, on behalf of the undersigned, the
Company's Annual Report on Form 10-K for the fiscal year ended December 27,
1998.
IN WITNESS WHEREOF, this Power of Attorney is executed this 8th day of
February, 1999.
/s/ Patricia Barron /s/ L. K. Black
- ---------------------------------- ----------------------------------
Patricia Barron Lennox K. Black
/s/ David S. Boyer /s/ William R. Cook
- ---------------------------------- ----------------------------------
David S. Boyer William R. Cook
/s/ Joseph S. Gonnella /s/ Pemberton Hutchinson
- ---------------------------------- ----------------------------------
Joseph S. Gonnella Pemberton Hutchinson
/s/ Lewis E. Hatch, Jr. /s/ Sigismundus W. W. Lubsen
- ---------------------------------- ----------------------------------
Lewis E. Hatch, Jr. Sigismundus W. W. Lubsen
/s/ Palmer E. Retzlaff /s/ James W. Stratton
- ---------------------------------- ----------------------------------
Palmer E. Retzlaff James W. Stratton
/s/ Donald Beckman
- ----------------------------------
Donald Beckman
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 66,689
<SECURITIES> 0
<RECEIVABLES> 295,369
<ALLOWANCES> 0
<INVENTORY> 235,869
<CURRENT-ASSETS> 616,942
<PP&E> 689,477
<DEPRECIATION> 257,721
<TOTAL-ASSETS> 1,215,917
<CURRENT-LIABILITIES> 311,479
<BONDS> 275,581
0
0
<COMMON> 37,615
<OTHER-SE> 496,835
<TOTAL-LIABILITY-AND-EQUITY> 1,215,917
<SALES> 1,437,578
<TOTAL-REVENUES> 1,437,578
<CGS> 1,029,658
<TOTAL-COSTS> 1,029,658
<OTHER-EXPENSES> 266,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,064
<INCOME-PRETAX> 124,760
<INCOME-TAX> 42,210
<INCOME-CONTINUING> 82,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,550
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
</TABLE>
