<PAGE> 1
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ------------------ TO ------------------
COMMISSION FILE NUMBER 1-5353
-----------------------------------
TELEFLEX INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 23-1147939
--------------------- ---------------------------------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
630 WEST GERMANTOWN PIKE, SUITE 450
PLYMOUTH MEETING, PA 19462
------------------------------------------ ------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
(610) 834-6301
------------------------------------
(TELEPHONE NUMBER INCLUDING AREA CODE)
NONE
-------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT SEPTEMBER 26, 1999
----------------------------------- ---------------------------------
Common Stock, $1.00 Par Value 37,971,490
</TABLE>
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<PAGE> 2
TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 26, DEC. 27,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents................................. $ 46,200 $ 66,689
Accounts receivable less allowance for doubtful
accounts............................................... 321,812 295,369
Inventories............................................... 239,964 235,869
Prepaid expenses.......................................... 21,007 19,015
---------- ----------
628,983 616,942
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 453,996 431,756
Investments in affiliates................................... 50,545 50,932
Intangibles and other assets................................ 136,628 116,287
---------- ----------
$1,270,152 $1,215,917
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------
Current liabilities
Current portion of borrowings and demand loans............ $ 94,574 $ 91,651
Accounts payable and accrued expenses..................... 199,722 194,525
Income taxes payable...................................... 21,859 25,303
---------- ----------
316,155 311,479
Long-term borrowings........................................ 280,264 275,581
Deferred income taxes and other............................. 87,558 94,407
---------- ----------
683,977 681,467
Shareholders' equity........................................ 586,175 534,450
---------- ----------
$1,270,152 $1,215,917
========== ==========
</TABLE>
2
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------------------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ------------------------
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues..................................... $377,391 $342,962 $1,190,707 $1,051,733
-------- -------- ---------- ----------
Cost of sales................................ 272,754 246,795 853,718 752,364
Operating expenses........................... 71,265 67,353 220,893 198,725
Interest expense............................. 4,561 4,192 13,378 12,938
-------- -------- ---------- ----------
348,580 318,340 1,087,989 964,027
-------- -------- ---------- ----------
Income before taxes.......................... 28,811 24,622 102,718 87,706
Provision for taxes on income................ 9,825 8,445 34,824 30,427
-------- -------- ---------- ----------
Net income................................... $ 18,986 $ 16,177 $ 67,894 $ 57,279
======== ======== ========== ==========
Earnings per share
Basic...................................... $ 0.50 $ 0.43 $ 1.80 $ 1.53
Diluted.................................... $ 0.49 $ 0.42 $ 1.76 $ 1.49
Dividends per share.......................... $ 0.130 $ 0.115 $ 0.375 $ 0.330
Average number of common and common
equivalent shares outstanding
Basic...................................... 37,951 37,391 37,777 37,320
Diluted.................................... 38,622 38,440 38,513 38,406
</TABLE>
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
SEPT. 26, SEPT. 27,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 67,894 $ 57,279
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization.......................... 49,832 44,887
(Increase) in accounts receivable...................... (30,118) (25,937)
(Increase) in inventory................................ (4,604) (3,198)
(Increase) decrease in prepaid expenses................ (2,063) 6,661
Increase in accounts payable and accrued expenses...... 5,336 14,694
(Decrease) increase in income taxes payable............ (3,879) 8,146
--------- --------
82,398 102,532
--------- --------
Cash flows from financing activities:
Proceeds from new borrowings.............................. 46,369 11,713
Reduction in long-term borrowings......................... (25,733) (5,888)
Increase (decrease) in current borrowings and demand
loans.................................................. 8,639 (26,032)
Proceeds from stock compensation plans.................... 2,940 3,046
Dividends................................................. (14,186) (12,307)
--------- --------
18,029 (29,468)
--------- --------
Cash flows from investing activities:
Expenditures for plant assets............................. (63,120) (51,709)
Payments for businesses acquired.......................... (43,895) (13,107)
Proceeds from sale of businesses and assets............... 35,868
Investments in affiliates................................. (12,053) (1,622)
Other..................................................... (1,848) 2,852
--------- --------
(120,916) (27,718)
--------- --------
Net (decrease) increase in cash and cash equivalents........ (20,489) 45,346
Cash and cash equivalents at the beginning of the period.... 66,689 30,702
--------- --------
Cash and cash equivalents at the end of the period.......... $ 46,200 $ 76,048
========= ========
</TABLE>
4
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TELEFLEX INCORPORATED
STATEMENT OF COMPREHENSIVE INCOME
-------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income.......................................... $18,986 $16,177 $67,894 $57,279
Unrealized holding (loss)........................... (2,173) -- (2,173) --
Cumulative translation adjustment................... 1,696 (1,325) (1,395) (1,537)
------- ------- ------- -------
Comprehensive income................................ $18,509 $14,852 $64,326 $55,742
======= ======= ======= =======
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1
The accompanying unaudited condensed consolidated financial statements for
the three months and nine months ended September 26, 1999 and September 27, 1998
contain all adjustments, consisting only of normal recurring adjustments, which
in the opinion of management are necessary to present fairly the financial
position, results of operations and cash flows for the periods then ended in
accordance with the current requirements for Form 10-Q.
NOTE 2
At September 26, 1999, 2,421,064 shares of common stock were reserved for
issuance under the company's stock compensation plans.
NOTE 3
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPT. 26, DEC. 27,
1999 1998
--------- --------
<S> <C> <C>
Raw materials.......................................... $ 89,395 $ 80,891
Work-in-process........................................ 41,817 41,646
Finished goods......................................... 108,752 113,332
-------- --------
$239,964 $235,869
======== ========
</TABLE>
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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NOTE 4
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ------------------------
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Sales
Commercial................................. $169,055 $146,904 $ 557,852 $ 480,295
Medical.................................... 91,414 84,019 274,366 248,274
Aerospace.................................. 116,922 112,039 358,489 323,164
-------- -------- ---------- ----------
Total.............................. $377,391 $342,962 $1,190,707 $1,051,733
======== ======== ========== ==========
Operating Profit
Commercial................................. $ 12,082 $ 9,051 $ 53,773 $ 45,178
Medical.................................... 12,086 9,977 35,341 29,759
Aerospace.................................. 13,718 14,058 40,280 38,628
-------- -------- ---------- ----------
37,886 33,086 129,394 113,565
-------- -------- ---------- ----------
Less:
Interest expense........................... 4,561 4,192 13,378 12,938
Corporate expenses......................... 4,514 4,272 13,298 12,921
-------- -------- ---------- ----------
Income before taxes.......................... 28,811 24,622 102,718 87,706
Taxes on income.............................. 9,825 8,445 34,824 30,427
-------- -------- ---------- ----------
Net income................................... $ 18,986 $ 16,177 $ 67,894 $ 57,279
======== ======== ========== ==========
</TABLE>
MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA
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RESULTS OF OPERATIONS:
- ------------------------
Revenues increased 10% in the third quarter of 1999 to $377.4 million from
$343.0 million in 1998. Approximately one-half of the growth was the result of
acquisitions while the balance was generated internally. Sales increased in the
Commercial, Medical and Aerospace segments by 15%, 9%, and 4%, respectively. The
Commercial, Medical and Aerospace segments comprised 45%, 24% and 31% of the
company's net sales, respectively.
The gross profit margin decreased slightly to 27.7% in 1999 compared with
28.0% in 1998. The decrease was due to higher gross profit margins in the
Medical and Commercial segments which were offset by a decline in Aerospace
gross profit margin. Operating expenses as a percentage of sales decreased to
18.9% in 1999 compared with 19.6% in 1998 resulting primarily from a decline in
the Medical Segment.
Operating profit increased 15% in the third quarter from $33.1 million in
1998 to $37.9 million in 1999 resulting from significant gains in Commercial and
Medical offset by a slight decline in Aerospace. Operating margin increased
slightly from 9.6% in 1998 to 10.0% in 1999 as increases in Commercial and
Medical offset a decline in Aerospace. The Commercial, Medical and Aerospace
segments comprised 32%, 32% and 36% of the company's operating profit,
respectively.
Net income and diluted earnings per share for the quarter were $19.0
million and $0.49, which represents a 17% increase for both compared with 1998.
Interest expense increased in 1999 as a result of an increase in average debt
offset somewhat by lower interest rates. The effective income tax rate was 34.1%
in 1999 compared with 34.3% in 1998. The decline resulted from a higher
proportion of income in 1999 earned in countries with relatively lower tax
rates.
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INDUSTRY SEGMENT REVIEW:
- ---------------------------
Sales in the Commercial Segment increased 15% from $146.9 million in 1998
to $169.1 million in 1999 resulting from increases in all three product lines,
Automotive, Marine and Industrial. New products in the Marine and Automotive
product lines and the strength in the domestic automotive market contributed to
the increase. Operating profit increased from $9.1 million in 1998 to $12.1
million in 1999 and operating margin increased slightly from 6.2% to 7.1%.
Marine and Industrial reported increases in operating profit while Automotive
profits remained relatively flat. Increases in the Marine and Industrial product
line operating margins offset a decline in Automotive from the continued
investment in engineering, product launch and plant start-up costs for the
adjustable pedal system.
The Medical Segment sales increased 9% from $84.0 million in 1998 to $91.4
million in 1999 due to gains in both the Hospital Supply and Surgical Devices
product lines. The gain resulted primarily from acquisitions, first in Hospital
Supply to extend the company's distribution in Europe, and also in Surgical
Devices adding to instrument management services and distribution in the United
States. Operating profit increased 21% from $10.0 million to $12.1 million from
both Hospital Supply and Surgical Devices while operating margin increased to
13.2% from 11.9% resulting from increased sales of higher margin products.
The Aerospace Segment sales increased 4% from $112.0 million in 1998 to
$116.9 million in 1999 primarily from gains in cargo systems and
turbo-machinery, which offset a decline in manufactured components. Operating
profit decreased 2% as a result of the volume decline in manufactured
components. Operating margin declined from 12.5% to 11.7% resulting from a
higher proportion of sales in the lower margin turbo-machinery product line and
in the repairs product line where profits are shared with a joint venture
partner.
CASH FLOWS FROM OPERATIONS AND LIQUIDITY:
- ----------------------------------------------
Additional working capital related to volume, which as a percentage of
sales improved over the prior year, resulted in a decrease in cash flows from
operating activities of $20.1 million. Long-term borrowings increased slightly
to $280.3 million at September 26, 1999 as compared to $275.6 million at
December 27, 1998. The ratio of long-term borrowings to total capitalization
improved from 34% at December 27, 1998 to 32% at September 26, 1999.
YEAR 2000:
- -----------
Background
The "year 2000 issue" refers to computer programs written using two digits
rather than four to define the year. This could result in computer systems being
unable to distinguish between the year 1900 and the year 2000. The remediation
of non-compliant computer systems before the year 2000 by the company, and its
suppliers and customers is necessary to minimize the possibility of systems
failures causing disruptions in business operations.
Project
The company began its year 2000 remediation project in 1997 comprising
seven phases: (1) awareness, (2) inventory, (3) assessment, (4) analysis, (5)
conversion, (6) implementation and (7) post implementation. Each of the
company's more than eighty business units is responsible for carrying out its
own remediation plan with assistance and monitoring by a full time "year 2000
project office." These remediation plans include requirements to develop and
test contingency procedures in the event of unforeseen system failures due to
year 2000 issues. These contingency plans may include identifying alternate
suppliers for the company's significant production materials and supplies,
adjusting factory production schedules and other measures considered appropriate
by management. At September 26, 1999 substantially all 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
7
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part of its overall business risk assessment, the company has sent year 2000
readiness surveys to its significant customers and suppliers. The surveys are
being continuously updated and, where necessary, will be supplemented with
on-site inspection of significant customers and suppliers.
Costs
The aggregate effort directed towards year 2000 remediation will be
approximately $10 to $12 million including the capitalized cost of computer
hardware and software systems and the redirected effort of the company's
existing resources. Approximately $9.3 million has been spent as of September
26, 1999 and has been funded by cash flows from operations.
Risks
Failure to correct a significant year 2000 issue could result in a
disruption of normal business operations. Due to the general uncertainty
inherent in the year 2000 issue, especially as it relates to the readiness of
customers and suppliers, a risk of a material adverse effect on the company's
future results of operations, liquidity and financial condition does exist. The
company believes that completion of its year 2000 project including scheduled
business system implementations will reduce the risk of significant disruption
of normal business operations. The company's operations are diversified among
over 80 separate business units. This diversified environment combined with
multiple customer and supplier relationships further reduces the risk of a
significant disruption to the company's operations.
FORWARD-LOOKING STATEMENTS:
- --------------------------------
This quarterly report includes the company's current plans and expectations
and is based on information available to it. It relies on a number of
assumptions and estimates which could be inaccurate and which are subject to
risks and uncertainties.
8
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TELEFLEX INCORPORATED
PART II OTHER INFORMATION
---------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------------
(A) Reports on form 8-K.
No reports on form 8-K were filed during the quarter.
9
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TELEFLEX INCORPORATED
SIGNATURES
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELEFLEX INCORPORATED
/s/ HAROLD L. ZUBER, JR.
--------------------------------------
Harold L. Zuber, Jr.
Vice President and Chief
Financial Officer
/s/ STEPHEN J. GAMBONE
--------------------------------------
Stephen J. Gambone
Controller and Chief
Accounting Officer
November 5, 1999
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> JUN-28-1999
<PERIOD-END> SEP-26-1999
<CASH> 46,200
<SECURITIES> 0
<RECEIVABLES> 321,812
<ALLOWANCES> 0
<INVENTORY> 239,964
<CURRENT-ASSETS> 628,983
<PP&E> 750,079
<DEPRECIATION> 296,083
<TOTAL-ASSETS> 1,270,152
<CURRENT-LIABILITIES> 316,155
<BONDS> 280,264
0
0
<COMMON> 37,971
<OTHER-SE> 548,204
<TOTAL-LIABILITY-AND-EQUITY> 1,270,152
<SALES> 377,391
<TOTAL-REVENUES> 377,391
<CGS> 272,754
<TOTAL-COSTS> 272,754
<OTHER-EXPENSES> 71,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,561
<INCOME-PRETAX> 28,811
<INCOME-TAX> 9,825
<INCOME-CONTINUING> 18,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,986
<EPS-BASIC> .49
<EPS-DILUTED> .49
</TABLE>
