1
Teleflex Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
Year ended
---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 25, December 26, December 27,
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
REVENUES $812,671,600 $666,796,200 $570,338,100
---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Materials, labor and other product costs 557,391,100 459,055,200 381,992,900
Selling, engineering and administrative expenses 173,928,300 140,964,700 124,212,800
Interest expense 18,361,400 14,466,100 15,482,300
---------------------------------------------------------------------------------------------------------------------------------
749,680,800 614,486,000 521,688,000
---------------------------------------------------------------------------------------------------------------------------------
Income before taxes 62,990,800 52,310,200 48,650,100
Estimated taxes on income 21,795,000 18,624,000 16,638,000
---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 41,195,800 33,686,200 32,012,100
Cumulative effect - change in accounting
for income taxes -- -- 860,000
---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 41,195,800 $ 33,686,200 $ 32,872,100
---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Earnings per share before cumulative effect of
change in accounting principle $2.35 $1.95 $1.87
Cumulative effect - change in accounting
for income taxes -- -- .05
---------------------------------------------------------------------------------------------------------------------------------
Earnings per share $2.35 $1.95 $1.92
---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
19
2
Teleflex Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 25, December 26,
1994 1993
---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 24,094,400 $ 11,254,900
Accounts receivable, less allowance for doubtful
accounts, 1994 - $3,036,900; 1993 - $2,352,700 183,744,700 143,489,400
Inventories
Raw materials and manufactured parts 75,268,800 67,979,400
Work-in-process and finished goods 97,835,700 91,307,800
Prepaid expenses 9,273,500 8,217,600
---------------------------------------------------------------------------------------------------------------------------------
Total current assets 390,217,100 322,249,100
---------------------------------------------------------------------------------------------------------------------------------
Plant assets
Land and buildings 101,990,900 95,466,900
Machinery and equipment 310,680,500 287,342,500
---------------------------------------------------------------------------------------------------------------------------------
412,671,400 382,809,400
Less accumulated depreciation 148,354,000 121,388,500
---------------------------------------------------------------------------------------------------------------------------------
Net plant assets 264,317,400 261,420,900
Investments in affiliates 7,980,000 5,296,800
Intangibles and other assets 48,274,200 51,608,700
---------------------------------------------------------------------------------------------------------------------------------
$710,788,700 $640,575,500
---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand loans $ 52,240,200 $ 55,737,500
Current portion of long-term borrowings 11,437,500 15,001,000
Accounts payable 50,631,600 44,681,600
Accrued expenses 45,512,100 32,577,400
Estimated income taxes payable 9,851,600 2,855,100
---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 169,673,000 150,852,600
Long-term borrowings 190,498,700 183,504,000
Deferred income taxes and other 41,592,600 36,428,800
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 401,764,300 370,785,400
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common shares, $1 par value
Issued: 1994 - 17,277,221 shares;
1993 - 17,084,245 shares 17,277,200 17,084,200
Additional paid-in capital 43,248,500 38,604,200
Retained earnings 252,649,500 220,387,700
Cumulative translation adjustment (4,150,800) (6,286,000)
---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 309,024,400 269,790,100
---------------------------------------------------------------------------------------------------------------------------------
$ 710,788,700 $ 640,575,500
---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
20
3
Teleflex Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended
---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 25, December 26, December 27,
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 41,195,800 $ 33,686,200 $ 32,872,100
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 33,018,900 28,070,800 21,556,100
Deferred income taxes including cumulative
effect of accounting change in 1992 2,050,000 1,151,000 8,820,000
(Increase) in accounts receivable (32,269,000) (19,733,700) (11,365,400)
(Increase) in inventories (4,003,200) (1,015,600) (3,112,900)
(Increase) decrease in prepaid expenses (704,300) (359,100) 696,800
Increase in accounts payable
and accrued expenses 11,641,200 8,224,300 2,563,800
Increase (decrease) in estimated income
taxes payable 6,776,800 (3,661,200) (8,361,700)
---------------------------------------------------------------------------------------------------------------------------------
57,706,200 46,362,700 43,668,800
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from new borrowings 14,131,000 76,171,000 32,314,000
Reduction in long-term borrowings,
including acquisition debt retired (17,054,000) (27,517,400) (34,082,000)
(Decrease) increase in current borrowings and
demand loans (13,839,700) 12,531,000 1,298,000
Proceeds from stock compensation plans and
distribution of treasury shares 4,837,300 6,132,500 4,686,100
Dividends (8,934,000) (7,639,800) (6,961,700)
---------------------------------------------------------------------------------------------------------------------------------
(20,859,400) 59,677,300 (2,745,600)
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FOR INVESTING ACTIVITIES
Expenditures for plant assets 25,324,600 24,400,200 19,339,200
Payments for businesses acquired 4,485,300 103,530,000 5,000,000
Proceeds from sale of businesses and assets (6,700,000) -- --
Investments in affiliates 3,251,000 1,369,000 5,199,000
Other (2,353,600) 1,817,000 (443,300)
---------------------------------------------------------------------------------------------------------------------------------
24,007,300 131,116,200 29,094,900
---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 12,839,500 (25,076,200) 11,828,300
Cash and cash equivalents at the beginning of the year 11,254,900 36,331,100 24,502,800
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 24,094,400 $ 11,254,900 $ 36,331,100
---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
21
4
Teleflex Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended
---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 25, December 26, December 27,
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES
Balance, beginning of year $ 17,084,200 $ 16,914,300 $ 16,785,100
Shares issued under compensation plans 193,000 169,900 129,200
---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 17,277,200 17,084,200 16,914,300
---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 38,604,200 33,117,800 28,085,400
Shares issued under compensation plans 4,644,300 5,486,400 3,762,500
Shares issued in connection with an acquisition -- -- 1,269,900
---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 43,248,500 38,604,200 33,117,800
---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 220,387,700 194,341,300 168,430,900
Net income 41,195,800 33,686,200 32,872,100
Cash dividends (8,934,000) (7,639,800) (6,961,700)
---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 252,649,500 220,387,700 194,341,300
---------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, end of year (4,150,800) (6,286,000) (3,430,000)
---------------------------------------------------------------------------------------------------------------------------------
TREASURY SHARES
Balance, beginning of year -- (476,200) (1,921,800)
Distribution of treasury shares -- 476,200 794,400
Shares issued in connection with an acquisition -- -- 651,200
---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year -- -- (476,200)
---------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $309,024,400 $269,790,100 $240,467,200
---------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE $.52 $.45 $.42
---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
22
5
Teleflex Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Teleflex
Incorporated and its subsidiaries.
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.
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,
straightline composite lives for depreciation of plant assets are as follows:
buildings 20 to 40 years; machinery, equipment and fixtures 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.
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.
Earnings per share is based on the weighted average number of common
and common equivalent shares outstanding.
ACQUISITIONS
In December 1993, the company acquired certain assets of Edward Weck
Incorporated (Weck), a manufacturer of surgical devices, for $63,500,000 in
cash.
In March 1993, the company acquired substantially all of the assets of
Mal Tool & Engineering, a manufacturer of turbine engine airfoils, for
$38,400,000 in cash.
These and other smaller acquisitions in both 1994 and 1993 have been
accounted for by the purchase method of accounting. The excess of the purchase
price over the fair value of net tangible assets acquired was $19,400,000 in
1993. The assets, liabilities and operating results of the acquisitions are
included in the company's financial statements from their respective dates of
acquisition. Liabilities amounting to $18,000,000 and $19,900,000 were assumed
in 1994 and 1993, respectively, in connection with the acquisitions.
The following unaudited pro forma information sets forth the results
of the company's operations as though the purchase of Weck had been made, and
the debt used to finance the acquisition had been incurred, at the beginning of
1992.
1993 1992
--------------------------------------------------------------------------
Revenues $726,481,300 $633,159,100
Net income $ 36,950,200 $ 34,669,100
Earnings per share (before
accounting change in 1992) $2.14 $2.02
--------------------------------------------------------------------------
Except for Weck as set forth above, results of operations would not have been
materially different had the acquisitions occurred as of the beginning of the
years acquired.
BORROWINGS AND LEASES
1994 1993
--------------------------------------------------------------------------
8.5% Senior Notes, due in
installments through 2002 $ 21,000,000 $ 24,000,000
7.4% Senior Notes, due in
installments from 1998
through 2007 30,000,000 30,000,000
6.6% Senior Notes, due in
installments from 1997
through 2008 50,000,000 50,000,000
Mortgage notes secured by
certain assets with a net
book value of $15,974,000 11,161,200 13,068,000
6.6% Deutsche Mark denom-
inated notes, due in install-
ments through 1999 50,085,000 40,600,000
Bank term notes, at an
average rate of 5.2%, due
in installments through 1998 13,500,000 15,000,000
Other debt and capital lease
obligations, at interest rates
ranging from 3% to 9% 26,190,000 25,837,000
--------------------------------------------------------------------------
201,936,200 198,505,000
Current portion of borrowings (11,437,500) (15,001,000)
--------------------------------------------------------------------------
$190,498,700 $183,504,000
--------------------------------------------------------------------------
23
6
The various senior note agreements provide for the maintenance of minimum
working capital amounts and ratios and limit the purchase of the company's
stock and payment of cash dividends. Under the most restrictive of these
provisions, $44,000,000 of retained earnings was available for dividends at
December 25, 1994.
The weighted average interest rate on the $52,240,200 of demand loans
due to banks was 6.4% at December 25, 1994. In addition, the company has
$70,000,000 available under several interest rate alternatives in unused lines
of credit.
Interest expense in 1994, 1993 and 1992 did not differ materially from
interest paid, nor does 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 1995 are as follows: 1996 - $11,619,200; 1997 -
$15,492,200; 1998 - $45,770,600; 1999 - $42,601,100.
The company has entered into certain operating leases which require
minimum annual payments as follows: 1995 - $10,271,200; 1996 - $9,142,600;
1997-$8,324,300; 1998-$7,652,200; 1999-$6,563,900. The total rental expense for
all operating leases was $9,417,900, $8,460,200 and $7,883,600 in 1994, 1993
and 1992, respectively.
SHAREHOLDERS' EQUITY
The authorized capital of the company is comprised of 50,000,000 common shares,
$1 par value, and 500,000 preference shares. No preference shares were
outstanding during the last three years.
At December 25, 1994, 1,211,495 shares of common stock were reserved
for issuance under the company's stock compensation plans. During 1994, options
to purchase 225,500 shares of common stock were granted. Officers and key
employees held options for the purchase of 1,167,674 shares of common stock at
prices ranging from $14.00 to $38.75 per share with an average price of $26.02
per share. Such options are presently exercisable with respect to 729,673
shares and become exercisable with respect to an additional 164,600 shares in
1995. In 1994 and 1993, 193,000 shares and 169,900 shares, respectively, were
issued under the compensation plans.
INCOME TAXES
The provision for income taxes consists of the following:
1994 1993 1992
--------------------------------------------------------------------------
Current
Federal $13,274,000 $14,133,000 $10,331,000
State 1,759,000 1,711,000 1,395,000
Foreign 4,712,000 1,629,000 (4,768,000)
Deferred 2,050,000 1,151,000 9,680,000
--------------------------------------------------------------------------
$21,795,000 $18,624,000 $16,638,000
--------------------------------------------------------------------------
The deferred income taxes provided and the balance sheet amounts of $29,173,000
in 1994 and $24,828,000 in 1993 related substantially to the methods of
accounting for depreciation. The increase in deferred taxes in 1992 resulted
from the acceleration of deductions in certain foreign jurisdictions. Income
taxes paid were $13,300,000, $20,600,000 and $12,600,000 in 1994, 1993 and
1992, respectively.
A reconciliation of the company's effective tax rate to the U.S.
statutory rate is as follows:
1994 1993 1992
--------------------------------------------------------------------------
Tax at U.S. statutory rate 35.0% 35.0% 34.0%
State income taxes 1.9 2.0 1.9
Foreign income taxes .1 -- 1.8
Export sales benefit (1.6) (1.5) (1.6)
Other (.8) .1 (1.9)
--------------------------------------------------------------------------
Effective income tax rate 34.6% 35.6% 34.2%
--------------------------------------------------------------------------
Effective as of the beginning of 1992, the company adopted SFAS 109, Accounting
for Income Taxes. The cumulative effect of this change in accounting for
periods prior to January 1992, increased 1992 net income by $860,000, or $.05
per share.
PENSIONS
The company has defined benefit plans which provide retirement benefits to
eligible employees. Assumptions used in determining the actuarial present value
of domestic benefit obligations reflect a weighted average discount rate of
8.0% in 1994 and 7.8% in 1993, an investment rate of 9% and a salary increase
of 5%. The assumed discount rate was 6% for foreign plans.
24
7
Pension expense, which includes a full year in 1994 for plans assumed
by the company in connection with 1993 acquisitions, is summarized as follows:
1994 1993 1992
--------------------------------------------------------------------------
Domestic plans
Service cost--
benefits earned
during the year $2,825,000 $1,595,000 $1,426,000
Interest cost on
projected ben-
efit obligation 3,718,000 2,673,000 1,687,000
Actual return on
plan assets 664,000 (1,547,000) (2,379,000)
Net amortization
and deferral (4,356,000) (1,324,000) 522,000
Foreign plans 440,000 495,000 525,000
--------------------------------------------------------------------------
$3,291,000 $1,892,000 $1,781,000
--------------------------------------------------------------------------
The following table sets forth the funded status of the plans and the amounts
shown in the balance sheet at December 25, 1994 and December 26, 1993:
1994 1993
--------------------------------------------------------------------------
Domestic
Plan assets at fair value,
primarily common stock
and U.S. Government
obligations $ 41,112,000 $ 41,763,000
--------------------------------------------------------------------------
Actuarial present value of
the benefit obligation
Vested (40,238,000) (37,635,000)
Non-vested (2,429,000) (3,536,000)
--------------------------------------------------------------------------
Accumulated benefit
obligation (42,667,000) (41,171,000)
Projected effect of future
salary increases (5,356,000) (6,875,000)
--------------------------------------------------------------------------
Total projected benefit
obligation (48,023,000) (48,046,000)
--------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (6,911,000) (6,283,000)
Unrecognized prior service
cost (418,000) 101,000
Unrecognized net loss 5,779,000 5,935,000
Unrecognized transition
asset (1,385,000) (1,520,000)
Unfunded foreign pension
amounts (4,700,000) (4,260,000)
--------------------------------------------------------------------------
Accrued pension liability $ (7,635,000) $ (6,027,000)
--------------------------------------------------------------------------
OTHER POSTRETIREMENT BENEFITS
The company provides postretirement medical and other benefits to eligible
employees. Assumptions used in determining the expense and benefit obligations
include a weighted average discount rate of 8.0% in 1994 and 7.8% in 1993 and
an initial health care cost trend rate of 11% in 1994 and 12% in 1993,
declining to 6% over a period of 6 years. Increasing the health care cost trend
rate by one percentage point would increase the accumulated postretirement
benefit obligation by $1,333,000 and would increase the 1994 postretirement
benefit expense by $168,000.
Postretirement benefit expense is summarized as follows:
1994 1993
--------------------------------------------------------------------------
Service cost-benefits
earned during the year $ 399,000 $ 312,000
Interest cost on accumulated
postretirement benefit
obligation 1,402,000 1,385,000
Net amortization and deferral 776,000 783,000
--------------------------------------------------------------------------
$2,577,000 $2,480,000
--------------------------------------------------------------------------
The company adopted SFAS 106, Employers' Accounting for Postretirement Benefits
Other than Pensions, in 1993. This change resulted in an incremental charge to
1993 net income of approximately $1,000,000, or $.06 per share.
25
8
The following table sets forth the accumulated obligation of the plans
and the amounts shown in the balance sheet at December 25, 1994 and December
26, 1993:
1994 1993
--------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ (9,548,000) $(10,569,000)
Fully eligible active plan
participants (1,255,000) (3,205,000)
Other active plan participants (3,666,000) (7,408,000)
--------------------------------------------------------------------------
(14,469,000) (21,182,000)
Unrecognized prior service cost (598,000) 351,000
Unrecognized transition
obligation 11,541,000 15,276,000
Unrecognized actuarial net
(gain) loss (654,000) 3,973,000
--------------------------------------------------------------------------
Accrued postretirement liability $ (4,180,000) $ (1,582,000)
--------------------------------------------------------------------------
BUSINESS SEGMENTS AND OTHER INFORMATION
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:
1994 1993 1992
--------------------------------------------------------------------------
Revenues $221,145,000 $187,259,000 $172,618,000
Identifiable
assets $249,000,000 $202,593,000 $181,050,000
Operating
profit $ 22,600,000 $ 19,700,000 $ 18,434,000
--------------------------------------------------------------------------
Export sales from the United States to unaffiliated customers approximated
$92,200,000, $69,800,000 and $60,500,000 for 1994, 1993 and 1992, respectively.
Export sales include $30,600,000, $24,000,000, and $21,500,000 to Canada in
1994, 1993 and 1992, respectively.
26
9
REPORT OF INDEPENDENT ACCOUNTANTS
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
25, 1994 and December 26, 1993 and the results of their operations and their
cash flows for each of the three years in the period ended December 25, 1994,
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.
As discussed on pages 24 and 25, the Company changed its methods of
accounting for income taxes and postretirement benefits in 1992 and 1993,
respectively.
Price Waterhouse LLP
Philadelphia, Pennsylvania
February 9, 1995
QUARTERLY FINANCIAL DATA
(unaudited)
Quarter ended
---------------------------------------------------------------------------------------------------------------------------------
(000 omitted except per share data) March June Sept. Dec.
---------------------------------------------------------------------------------------------------------------------------------
1994
---------------------------------------------------------------------------------------------------------------------------------
Revenues $ 191,084 $ 209,456 $ 193,367 $ 218,765
Gross profit 58,508 64,765 59,765 72,243
Income before taxes 15,330 17,194 11,380 19,087
Net income 9,965 11,176 7,397 12,658
Earnings per share .57 .64 .42 .72
Cash dividends per share .115 .135 .135 .135
Price range of common stock 36 1/8-40 32 1/8-37 32 3/8-39 3/4 31 3/4-40 1/4
---------------------------------------------------------------------------------------------------------------------------------
1993
---------------------------------------------------------------------------------------------------------------------------------
Revenues $ 157,575 $ 174,921 $ 156,878 $ 177,422
Gross profit 49,257 54,421 47,700 56,363
Income before taxes 13,174 14,250 9,661 15,225
Net income 8,563 9,263 5,904 9,956
Earnings per share .50 .54 .34 .57
Cash dividends per share .105 .115 .115 .115
Price range of common stock 29-33 5/8 27 3/4-32 30 3/4-33 3/8 28-38 1/4
---------------------------------------------------------------------------------------------------------------------------------
1992
---------------------------------------------------------------------------------------------------------------------------------
Revenues $ 132,814 $ 148,835 $ 138,032 $ 150,657
Gross profit 42,705 49,167 45,564 50,909
Income before taxes 12,103 13,033 9,400 14,114
Net income 7,958(a) 8,581 6,168 9,305
Earnings per share .47(a) .50 .36 .54
Cash dividends per share .10 .105 .105 .105
Price range of common stock 32 7/8-39 1/2 31 1/8-35 3/4 27 5/8-33 5/8 25-32 7/8
---------------------------------------------------------------------------------------------------------------------------------
(a) Excludes an increase in net income of $860,000, or $.05 per share as a
result of a change in accounting for income taxes.
27
10
Teleflex Incorporated and Subsidiaries
SELECTED FINANCIAL AND INDUSTRY SEGMENT DATA
----------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues
Commercial Products $356,708 $284,106 $210,464
Medical Products 253,020 180,623 179,376
Aerospace Products and Services 202,944 202,067 177,292
----------------------------------------------------------------------------------------------------------------
Net sales 812,672 666,796 567,132
Other income(a) -- -- 3,206
----------------------------------------------------------------------------------------------------------------
Total revenues $812,672 $666,796 $570,338
----------------------------------------------------------------------------------------------------------------
Operating profit
Commercial Products $ 53,324 $ 37,794 $ 25,754
Medical Products 32,386 21,486 25,463
Aerospace Products and Services 5,367 14,906 16,100
----------------------------------------------------------------------------------------------------------------
91,077 74,186 67,317
Less:
Interest expense 18,361 14,466 15,482
Corporate expenses, net of other income 9,725 7,410 3,185
----------------------------------------------------------------------------------------------------------------
Income before taxes 62,991 52,310 48,650
Estimated taxes on income 21,795 18,624 16,638
----------------------------------------------------------------------------------------------------------------
Net income $ 41,196 $ 33,686 $ 32,012(b)
----------------------------------------------------------------------------------------------------------------
Earnings per share $2.35 $1.95 $1.87(b)
Cash dividends per share $.52 $.45 $.42
Net income from operations as a percent of revenues 5.1% 5.1% 5.6%
Percent of net sales
Commercial Products 44% 43% 37%
Medical Products 31% 27% 32%
Aerospace Products and Services 25% 30% 31%
Average number of common and common equivalent
shares outstanding 17,530 17,267 17,132
Average number of employees 8,740 7,920 6,920
----------------------------------------------------------------------------------------------------------------
28
11
----------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985 1984
----------------------------------------------------------------------------------------------------------------------
(000 omitted except per share and employee data)
$168,598 $162,646 $173,957 $153,144 $130,310 $109,811 $101,495 $ 95,871
130,540 115,756 42,406 38,032 25,928 21,314 -- --
180,399 162,731 139,262 132,413 113,540 83,057 70,321 57,439
----------------------------------------------------------------------------------------------------------------------
479,537 441,133 355,625 323,589 269,778 214,182 171,816 153,310
3,472 3,080 4,441 4,634 1,988 3,965 3,221 2,426
----------------------------------------------------------------------------------------------------------------------
$483,009 $444,213 $360,066 $328,223 $271,766 $218,147 $175,037 $155,736
----------------------------------------------------------------------------------------------------------------------
$ 19,996 $ 22,224 $ 22,025 $ 26,794 $ 25,239 $ 19,993 $ 15,251 $ 13,549
19,900 16,183 5,782 3,755 2,107 168 -- --
21,722 20,781 20,711 16,548 15,095 14,090 13,470 10,772
----------------------------------------------------------------------------------------------------------------------
61,618 59,188 48,518 47,097 42,441 34,251 28,721 24,321
13,765 12,401 6,886 6,225 4,886 3,679 1,626 1,396
2,519 3,880 2,395 4,493 5,894 3,642 4,887 3,815
----------------------------------------------------------------------------------------------------------------------
45,334 42,907 39,237 36,379 31,661 26,930 22,208 19,110
15,527 14,340 12,440 12,370 11,990 10,500 8,900 7,800
----------------------------------------------------------------------------------------------------------------------
$ 29,807 $ 28,567 $ 26,797 $ 24,009 $ 19,671 $ 16,430 $ 13,308 $ 11,310
----------------------------------------------------------------------------------------------------------------------
$1.77 $1.73 $1.63 $1.48 $1.20 $1.01 $.84 $.72
$.39 $.35 $.31 $.26 $.22 $.18 $.15 $.14
6.2% 6.4% 7.4% 7.3% 7.2% 7.5% 7.6% 7.3%
35% 37% 49% 47% 48% 51% 59% 63%
27% 26% 12% 12% 10% 10% -- --
38% 37% 39% 41% 42% 39% 41% 37%
16,850 16,476 16,403 16,243 16,459 16,315 15,902 15,788
6,160 5,860 5,080 4,350 3,760 3,300 2,380 2,060
----------------------------------------------------------------------------------------------------------------------
(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 $860,000, or $.05 per
share as a result of a change in accounting for income taxes.
29
12
Teleflex Incorporated and Subsidiaries
SELECTED FINANCIAL AND INDUSTRY SEGMENT DATA (continued)
----------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Identifiable assets
Commercial Products $184,971 $158,206 $142,041
Medical Products 311,547 266,239 206,562
Aerospace Products and Services 188,348 202,130 142,523
Corporate 25,923 14,001 43,805
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Total assets $710,789 $640,576 $534,931
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Capital expenditures
Commercial Products $ 13,489 $ 7,967 $ 7,386
Medical Products $ 7,029 $ 7,361 $ 5,316
Aerospace Products and Services $ 4,538 $ 8,865 $ 6,384
Depreciation and amortization
Commercial Products $ 9,930 $ 9,251 $ 6,262
Medical Products $ 11,694 $ 8,030 $ 6,505
Aerospace Products and Services $ 10,771 $ 10,176 $ 8,002
Long-term borrowings $190,499 $183,504 $134,600
Shareholders' equity $309,024 $269,790 $240,467
Working capital $220,544 $171,397 $166,803
Current ratio 2.3 2.1 2.4
Book value per share $17.89 $15.79 $14.25
Return on average shareholders' equity 14.2% 13.2% 14.2%
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1991 1990 1989 1988 1987 1986 1985 1984
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(000 omitted except per share data)
$101,187 $ 84,678 $ 90,557 $ 83,601 $ 60,099 $ 51,342 $ 40,790 $ 44,656
194,609 147,954 125,635 34,819 28,997 19,715 -- --
141,104 143,419 130,762 107,524 108,769 85,173 55,963 41,871
40,793 49,049 19,708 38,172 28,042 28,932 40,134 22,806
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$477,693 $425,100 $366,662 $264,116 $225,907 $185,162 $136,887 $109,333
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$ 7,505 $ 5,581 $ 5,507 $ 8,880 $ 6,065 $ 9,289 $ 3,848 $ 1,692
$ 7,138 $ 4,236 $ 2,373 $ 960 $ 2,360 $ 1,436 -- --
$ 5,585 $ 7,166 $ 10,701 $ 5,228 $ 6,446 $ 4,722 $ 3,186 $ 4,547
$ 5,633 $ 5,369 $ 4,715 $ 3,675 $ 3,038 $ 2,238 $ 1,816 $ 1,404
$ 4,725 $ 3,999 $ 1,693 $ 1,455 $ 1,097 $ 1,003 -- --
$ 7,366 $ 7,024 $ 5,777 $ 5,556 $ 5,272 $ 3,682 $ 2,661 $ 2,184
$119,370 $112,941 $106,128 $ 57,104 $ 55,013 $ 37,578 $ 23,477 $ 14,112
$211,702 $187,875 $160,038 $136,328 $115,517 $100,573 $ 84,312 $ 72,620
$131,589 $133,840 $112,325 $ 98,217 $ 90,270 $ 69,723 $ 66,777 $ 56,052
2.1 2.3 2.4 2.6 2.8 2.7 3.6 3.8
$12.73 $11.44 $9.87 $8.49 $7.25 $6.25 $5.36 $4.64
14.9% 16.4% 18.1% 19.1% 18.2% 17.8% 17.0% 16.6%
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1994 FINANCIAL REVIEW
OVERVIEW
The company's major financial objectives are to achieve a 15% to 20% growth
rate in revenues and net income and to generate a 20% return on average
shareholders' equity. Over the past five years the compounded growth rates for
sales and net income have been 18% and 9%, respectively, while the return on
shareholders' equity has averaged 15%. In 1994 the company achieved its revenue
and net income objectives and the return on average shareholders' equity
improved to 14% . Prior to 1994, the growth rates were tempered by the
relatively disappointing economy first in the United States and then in Europe,
and the downward cycle in both the military and commercial aerospace markets.
Additionally, during that time period the company invested heavily, primarily
through acquisition, to build the Medical Segment.
The company is also committed to maintaining a reasonable balance
among its three segments--Commercial, Medical and Aerospace. Balance reduces
dependence on any one segment, allows for investment at the bottom of a
segment's operating cycle and gives the company a broader base of markets in
which to grow. Over the past five years, the company's operating profit has
increased despite cyclical downturns in each of the segments. It is not
unreasonable to expect the future balance among the three segments to be
weighted more heavily toward the Commercial and Medical segments as the
prospects in these markets are stronger than those for the Aerospace Segment.
The company intends to achieve its growth objectives through both
internal development of new products and new markets for existing products as
well as through acquisitions. In general, it is expected that half of the
growth will be achieved through internal means and the remainder through
acquisitions. This was achieved in 1994 as roughly one-half of the company's
growth was internal. Prior to 1994, internal growth had been hampered by the
lackluster worldwide economy, overcapacity in some markets and intensifying
competition. As a result, internal growth over the five years prior to 1994
accounted for only one-quarter of the company's overall growth. During the same
time, the company invested approximately $200 million in acquisitions which
have contributed the remaining three-quarters of the growth.
Acquisitions, while adding initially to sales, generally do not contribute
proportionately to earnings in the early years. In these years, earnings
generally are reduced by upfront costs such as interest, depreciation and
amortization and, in many instances, the expenses of integrating a
newly-acquired business into an existing operation.
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 more than $220 million. This healthy cash flow also
provides for the payment of dividends and enables the company to continue to
upgrade its plant and equipment. While not particularly capital intensive, the
company's businesses spend approximately 4% of net sales annually on plant and
equipment. With respect to dividends, the company's policy is to pay 20% of
trailing twelve months' earnings. This policy has been followed since the first
cash dividend payment was made in 1977.
The company generally has maintained conservative levels of long-term
debt ranging from 30% to 40% of total capitalization. However, it is not
inconceivable that debt may range up to 50% of capitalization for a limited
period in order to finance acquisitions. The company finances foreign
operations and acquisitions mostly in their local currencies, thus reducing the
overall risk of exchange rate fluctuations. As a result, approximately 40% of
the company's short- and long-term debt is denominated in currencies other than
the U.S. dollar. In summary, the
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company believes its strong financial position, healthy cash flows from
operations, and unused debt capacity provide it with adequate financial
resources and flexibility to pursue its long-term strategic growth objectives.
RESULTS OF OPERATIONS
1994 VS. 1993: Revenues increased 22% in 1994 to $812.7 million from $666.8
million in 1993. The increase is attributable to the Commercial and Medical
segments while the Aerospace Segment was essentially flat. For 1994, the
Commercial, Medical and Aerospace segments comprised 44%, 31% and 25% of the
company's net sales, respectively. The acquisition of Edward Weck Incorporated
(Weck) in December 1993, accounted for a significant portion of the growth in
the Medical Segment. The Commercial Segment gain was generated internally from
the continued strength in its markets and the introduction of new products.
Foreign operations, which accounted for 27% of revenues, increased 18% in 1994
and were affected minimally by changes in foreign currency exchange rates.
Gross product margin remained relatively flat in 1994 as gains in
Commercial and Medical segment margins were offset by a decline in Aerospace
margins. Selling, engineering and administrative expenses increased absolutely
but remained relatively constant as a percentage of sales. The major factor
contributing to the increased expenses was the larger sales contribution from
the Medical Segment, which has higher selling costs compared with the other
segments.
Operating profit increased 23% in 1994 to $91.1 million from $74.2
million in 1993. Increases in the Commercial and Medical segments offset a drop
in the Aerospace Segment. In 1994 after several years of decline, operating
profit as a percentage of sales (operating margin) increased fractionally over
1993. The improvement is due primarily to increased margins in the Commercial
and Medical segments which offset a decline in the Aerospace Segment.
Net income in 1994 was $41.2 million, up 22% from last year while
earnings per share increased 21% to $2.35 per share from $1.95 in 1993.
1993 VS. 1992: Revenues increased 17% to $666.8 million compared to $570.3
million in 1992. The increase was a result of gains in the Commercial and
Aerospace segments as the Medical Segment was virtually unchanged. For 1993 the
Commercial, Medical and Aerospace segments comprised 43%, 27% and 30% of the
company's net sales, respectively. Acquisitions accounted for a substantial
portion of the growth in the Aerospace Segment and approximately one-half of
the growth in the Commercial Segment. The balance of the growth in the
Commercial Segment was generated through improved market conditions and the
development of both new products and new applications of existing products.
Revenues from foreign operations increased 8% and accounted for 28% of total
revenues compared with 30% in 1992.
The overall gross product margin decreased as a percentage of sales
from 33% in 1992 to 31% in 1993. The decrease was attributable to declines in
the Medical and Aerospace segments which were partially offset by an increase
in the Commercial Segment. Selling, engineering and administrative expenses
decreased slightly as a percentage of sales because of the lower proportionate
volume of the Medical Segment which has higher sales and distribution costs
relative to the other segments.
Operating profit increased 10% to $74.2 million in 1993 compared with
$67.3 million in 1992. Strong gains in the Commercial Segment more than offset
declines in the Medical and Aerospace segments. Operating margin
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declined as a result of declines in both the Medical and Aerospace segments
despite an increase in the Commercial Segment.
Net income before adjustment for the change in accounting for income
taxes increased 5% to $33.7 million in 1993 from $32.0 million in 1992 and
earnings per share grew to $1.95 in 1993 from $1.87 in 1992. Earnings per share
for 1993 was affected by a $.06 charge to earnings because of the adoption of
Statement of Financial Accounting Standard (SFAS) 106: Employers' Accounting
for Postretirement Benefits Other than Pensions. Also, earnings per share in
1992 increased $.05 due to the adoption of SFAS 109: Accounting for Income
Taxes.
COMMERCIAL PRODUCTS SEGMENT
The Commercial Products Segment businesses design and manufacture mechanical,
electrical and hydraulic controls, and electronics products for the pleasure
marine market; proprietary mechanical controls for the automotive market; and
certain innovative 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, are manufactured for general distribution, as
well as custom fabricated to meet individual customer needs. Consumer spending
patterns generally influence the market trends for these products.
1994 VS. 1993: Sales in the Commercial Segment increased 26% from $284.1
million to $356.7 million. All three product lines, Automotive, Marine and
Industrial, reported higher sales as demand for their products was boosted by
the strength of their markets. Sales of new products, primarily in the Marine
product line and to a lesser extent the Automotive and Industrial product
lines, also contributed to the increase.
Operating profit increased 41% to $53.3 million in 1994 from $37.8
million in 1993 as a result of volume and operating margin gains in all three
product lines. The improved performance in the Automotive and Industrial
product lines stemmed primarily from the increased volume. Within the Marine
product line, increases in sales, primarily electronics products, coupled with
lower design and manufacturing costs accounted for the gain.
Assets increased in 1994 due to a higher level of accounts receivable
related to volume and to capital equipment additions in the Marine and
Industrial product lines for new products and capacity expansion.
1993 VS. 1992: Sales in the Commercial Segment increased 35% in 1993 to $284.1
million from $210.5 million as sales in all three product lines, Automotive,
Marine and Industrial registered gains. Over one-half of the gain in the
segment was attributable to the Marine product line where improved market
conditions, new products and the acquisition of Techsonic Industries, Inc.,
contributed to the increase. Stronger market conditions and improved market
share in the Automotive product line and improved market conditions and new
products in the Industrial product line comprised the remainder of the
increase.
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Operating profit increased 47% from $25.8 million in 1992 to $37.8
million in 1993 as all three product lines gained, generally as a result of
increased volume. Operating margins improved as a result of increased volume in
the Automotive and Industrial product lines while Marine operating margins were
reduced by expenses associated with the design and start-up of an entirely new
line of electronics products.
Assets increased in 1993 due primarily to higher accounts receivable
resulting from greater volume, particularly in the fourth quarter. Also
contributing to the increase was an investment in new tooling and inventory in
connection with the introduction of a new line of marine electronics products.
MEDICAL PRODUCTS SEGMENT
The Medical Products Segment includes the manufacture and distribution of a
broad range of invasive disposable and reusable devices for the urology,
gastroenterology, anesthesiology and respiratory care markets worldwide. It
also manufactures general and specialized surgical instruments used in both
traditional (open) and minimally-invasive surgical procedures.
These products generally are required to meet exacting standards of
performance and have long product life cycles. External economic influences on
the sales of these products relate primarily to spending patterns in the
worldwide medical devices and supplies market.
1994 VS. 1993: In 1994, the Medical Segment achieved sales of $253.0 million,
exceeding 1993 sales by $72.4 million or 40%. The increase was the result of
the acquisition of Weck in December 1993 and, to a lesser extent, improved
sales in the hospital supply product line. Several small acquisitions made
throughout the year had no significant impact on results of operations in 1994.
Operating profit increased 51% in 1994 to $32.4 million and operating
margin improved to 12.8% from 11.9% in 1993. Approximately one-half the
increase in operating profit was the result of the Weck acquisition with the
remainder due to the higher volume in the hospital supply product line.
Operating margin was enhanced by the hospital supply product line cost
reduction program begun in 1993. The improvements in both operating profit and
operating margin were achieved despite the additional costs of assimilating the
Weck acquisition into the existing surgical device businesses.
Assets increased in 1994 due to several small acquisitions in both the
hospital supply and surgical device product lines. Also contributing to the
increase were higher accounts receivable from the Weck acquisition and the
sales increase in the hospital supply product line.
1993 VS. 1992: In 1993 Medical Segment sales of $180.6 million were virtually
unchanged from 1992. Gains in the North American market, primarily in surgical
devices, were offset by declines in the hospital supply product line in Europe
stemming from the recession. In addition, Medical Segment sales were negatively
affected by weaker foreign currencies.
Operating profit declined by 16% from $25.5 million in 1992 to $21.5
million in 1993. The decline was attributable to the European hospital supply
business where lower volume and severance charges associated with a cost
reduction program depressed profits. These declines were partially offset by
increased surgical device sales and margins in the North American market.
Assets increased in 1993 due primarily to the acquisition of Weck
which included $32.0 million in plant and equipment. Additional expenditures
for plant and equipment were made, primarily in Germany, to consolidate
manufacturing processes, improve efficiencies and meet current and expected
future regulatory requirements.
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AEROSPACE PRODUCTS AND SERVICES SEGMENT
The Aerospace Products and Services Segment serves the aerospace, defense and
turbine engine markets. Its businesses design and manufacture precision
controls and systems for both military and commercial application; provide
coating and repair services for turbine engine manufacturers, operators and
overhaulers; and manufacture airfoils for both flight and land-based turbine
engines.
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 and defense industries.
1994 VS. 1993: Sales in 1994 of $202.9 million in the Aerospace Segment were
essentially flat as gains from cargo handling systems, ground turbine business
and the March 1993 acquisition of Mal Tool & Engineering (Mal) were offset by
declines resulting from the impact of the weak commercial aviation and defense
markets.
Operating profit decreased 64% from $14.9 million in 1993 to $5.4
million in 1994. The major factors contributing to the decline were lower
volume in certain of the operating units, costs associated with the reduction
in capacity and significant expenditures related to the development of the
cargo handling systems business. Future growth in this segment depends in part
on a strengthening of the commercial aviation industry, further development of
the cargo handling systems business, and capitalizing on the capacity
consolidation and productivity improvements made during 1994.
Assets decreased in 1994 as a result of a decline in plant and
equipment, and inventories due to capacity reduction efforts.
1993 VS. 1992: Sales in the Aerospace Segment increased 14% from $177.3 in 1992
to $202.1 in 1993. The gain was due primarily to the acquisition of Mal, and an
increase in Sermatech product line volume including gains in airline repairs
and ground turbine business. The increases more than offset a decline in the
Aerospace controls product line which resulted from a significant reduction in
defense related sales.
Operating profit decreased 7% from $16.1 to $14.9 as increases in the Sermatech
product line and the contribution from the acquisition of Mal did not fully
offset declines in the Aerospace controls product line. Operating margin
declined in 1993 due to lower volume in Aerospace controls product line sales
and significant expenses associated with development of cargo systems products.
Assets increased in 1993 due primarily to the acquisition of Mal which
included $27.8 million of plant and equipment. Additions to cargo product line
inventories in connection with several new contracts also contributed to the
increase in segment assets.
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INTEREST EXPENSE
The increase in 1994 interest expense was due primarily to borrowings incurred
at the end of 1993 to finance the Weck acquisition offset somewhat by lower
average interest rates. In 1993 interest expense remained relatively constant
with the prior year as lower rates offset the expense of borrowings associated
with acquisitions. Interest expense increased slightly in 1994 to 2.3% of sales
compared with 2.2% of sales in 1993.
INCOME TAX EXPENSE
The effective tax rate was 34.6% in 1994 compared with 35.6% in 1993. The lower
1994 rate was due primarily to a non-recurring increase in 1993 deferred taxes
stemming from the change in the U.S. corporate tax rate from 34% to 35%.
CASH FLOWS
The company continued to generate high levels of cash from operations. In 1994,
cash flows from operating activities were $57.7 million compared with $46.4
million in 1993 and $43.7 million in 1992. The increase in 1994 was due to
higher net income and the timing of income tax and other payments partially
offset by an increase in accounts receivable related to volume. For 1993 the
increase was attributable to net income and non-cash items along with an
improvement in the changes in current liability accounts. These improvements
were partially offset by accounts receivable increases related to volume.
Capital expenditures were $25.3 million, $24.4 million and $19.3
million in 1994, 1993 and 1992, respectively, and are adequate to support the
ongoing requirements of the company. In 1994, expenditures were primarily
related to the expansion of capacity within the Commercial Segment. In 1993,
expenditures were spread throughout all three segments for productivity
improvements, new product initiatives and maintenance of capacity levels.
Historically the most significant investment of cash has been payments for
businesses acquired. Although minimal during 1994, these payments over the last
three years were more than $100 million and generally have been financed
through fixed-rate, long-term borrowings. The combination of lower
acquisition-related, long-term borrowings and the increase in shareholders'
equity resulted in an improvement in the company's debt to total capitalization
from 40% in 1993 to 38% in 1994.
Dividends paid in 1994 increased 16% to $.52 per share and totaled
$8.9 million. In 1993 dividends were increased 7% over 1992 to $.45 per share
and aggregated $7.6 million. Cash dividends have been paid since 1977 and have
increased every year since inception of the payment.
SHAREHOLDERS' EQUITY
Shareholders' equity increased 15% to $309.0 million at December 25, 1994
compared with $269.8 million at December 26, 1993. The book value per share at
December 25, 1994 increased to $17.89 compared with $15.79 at December 26,
1993. Currency translation adjustments increased shareholders' equity by $2.1
million due to stronger foreign currencies at the comparable year ends.
37