1
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Year ended
- -------------------------------------------------------------------------------------------------------------
DECEMBER 28, December 29, December 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share)
REVENUES $1,145,773 $931,183 $912,689
- -------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Materials, labor and other product costs 794,780 640,187 628,027
Selling, engineering and administrative expenses 230,153 190,341 192,430
Interest expense, net 14,435 13,876 18,632
- -------------------------------------------------------------------------------------------------------------
1,039,368 844,404 839,089
- -------------------------------------------------------------------------------------------------------------
Income before taxes 106,405 86,779 73,600
Estimated taxes on income 36,333 29,617 24,730
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 70,072 $ 57,162 $ 48,870
- -------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $1.91 $1.61 $1.40
Diluted $1.86 $1.58 $1.37
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
19
2
TELEFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 28, December 29,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 30,702 $ 68,618
Accounts receivable, less allowance for doubtful
accounts, 1997 - $5,668; 1996 - $4,110 260,187 193,587
Inventories 218,538 190,696
Prepaid expenses 21,182 13,120
Assets held for sale 35,868 --
- -------------------------------------------------------------------------------------------------------------------
Total current assets 566,477 466,021
- -------------------------------------------------------------------------------------------------------------------
Plant assets
Land and buildings 122,127 110,379
Machinery and equipment 471,233 375,277
- -------------------------------------------------------------------------------------------------------------------
593,360 485,656
Less accumulated depreciation 229,347 193,869
- -------------------------------------------------------------------------------------------------------------------
Net plant assets 364,013 291,787
Investments in affiliates 37,510 17,356
Intangibles and other assets 111,165 82,690
- -------------------------------------------------------------------------------------------------------------------
$1,079,165 $857,854
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand loans $ 87,414 $ 57,168
Current portion of long-term borrowings 28,315 13,419
Accounts payable 80,437 53,728
Accrued expenses 77,949 55,194
Estimated income taxes payable 20,792 17,157
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 294,907 196,666
Long-term borrowings 237,562 195,945
Deferred income taxes and other 82,943 56,067
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 615,412 448,678
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common shares, $1 par value
Issued: 1997 - 37,118,146 shares; 1996 - 18,111,321 shares 37,118 18,111
Additional paid-in capital 63,158 58,941
Retained earnings 373,467 336,173
Cumulative translation adjustment (9,990) (4,049)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 463,753 409,176
- -------------------------------------------------------------------------------------------------------------------
$1,079,165 $857,854
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
20
3
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 28, December 29, December 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 70,072 $ 57,162 $ 48,870
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 47,940 38,751 37,740
Deferred income taxes 1,530 (711) 1,061
(Increase) decrease in accounts receivable (38,886) (9,131) 411
(Increase) in inventories (13,920) (3,964) (9,266)
(Increase) in prepaid expenses (3,477) (2,191) (2,142)
Increase (decrease) in accounts payable
and accrued expenses 13,896 (5,056) (13,179)
Increase (decrease) in estimated income
taxes payable 3,635 (1,198) 7,320
Gain on disposition of product lines -- (2,055) --
- -------------------------------------------------------------------------------------------------------------------
80,790 71,607 70,815
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from new borrowings 85,259 30,824 34,941
Reduction in long-term borrowings (43,488) (39,114) (35,693)
Increase (decrease) in current borrowings and
demand loans 36,948 (3,671) 6,130
Proceeds from stock compensation plans 4,362 5,523 7,011
Dividends (14,258) (12,056) (10,453)
- -------------------------------------------------------------------------------------------------------------------
68,823 (18,494) 1,936
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for plant assets (74,622) (40,500) (30,708)
Payments for businesses acquired (99,802) (26,599) (9,202)
Proceeds from disposition of product lines and assets -- 32,140 5,038
Investments in affiliates (11,466) (2,568) (4,172)
Other (1,639) (2,622) (2,147)
- -------------------------------------------------------------------------------------------------------------------
(187,529) (40,149) (41,191)
- -------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (37,916) 12,964 31,560
Cash and cash equivalents at the beginning of the year 68,618 55,654 24,094
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 30,702 $ 68,618 $ 55,654
- -------------------------------------------------------------------------------------------------------------------
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 28, December 29, December 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share)
COMMON SHARES
Balance, beginning of year $ 18,111 $ 17,537 $ 17,277
Shares issued under compensation plans 235 174 260
Common stock dividend 18,520 -- --
Shares issued in acquisitions 252 400 --
- -------------------------------------------------------------------------------------------------------------------
Balance, end of year 37,118 18,111 17,537
- -------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 58,941 49,999 43,248
Shares issued under compensation plans 4,127 5,349 6,751
Shares issued in acquisitions 90 3,593 --
- -------------------------------------------------------------------------------------------------------------------
Balance, end of year 63,158 58,941 49,999
- -------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 336,173 291,067 252,650
Net income 70,072 57,162 48,870
Cash dividends (14,258) (12,056) (10,453)
Common stock dividend (18,520) -- --
- -------------------------------------------------------------------------------------------------------------------
Balance, end of year 373,467 336,173 291,067
- -------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, end of year (9,990) (4,049) (3,239)
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $463,753 $409,176 $355,364
- -------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE $.39 $.34 $.30
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
22
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:
- -------------------------------------------------------
1997 1996
- -------------------------------------------------------
Raw materials $72,806 $ 72,704
Work-in-process 40,368 35,010
Finished goods 105,364 82,982
- -------------------------------------------------------
$218,538 $190,696
- -------------------------------------------------------
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.
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
In December 1997 the company acquired the shares of United Parts Group N.V.
(United Parts), 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 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 ControlSystems' 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 had the acquisition of United Parts
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.
During the first quarter of 1996 the company disposed of two product lines
for total proceeds of $37,640 including a $5,500 note receivable due in 2003. A
pre-tax gain on these dispositions of $2,055 or, $.04 per share after tax has
been reported as a reduction of operating expenses in the Consolidated
Statement of Income and is included in the Aerospace Segment operating profit.
Also in 1996 the company paid $26,599 to acquire the net assets of various
businesses and issued 800,000 shares of stock for all of the outstanding shares
of an electro-chemical machining company in an acquisition accounted for as a
pooling of interests.
For 1997 and 1996 liabilities of $82,896 and $32,116 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 United Parts 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.
BORROWINGS AND LEASES
1997 1996
- ----------------------------------------------------------------------
Senior Notes at an average
rate of 6.9% due in installments
through 2008 $ 76,000 $ 80,000
Deutsche Mark denominated
notes at an average rate
of 5.6% due in installments
through 2004 140,980 78,496
Other debt, mortgage notes and capital
lease obligations, at interest rates
ranging from 3% to 9% 48,897 50,868
- ----------------------------------------------------------------------
265,877 209,364
Current portion of borrowings (28,315) (13,419)
- ----------------------------------------------------------------------
$237,562 $195,945
- ----------------------------------------------------------------------
23
6
TELEFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share)
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, $86,000 of retained earnings was available for dividends at
December 28, 1997.
The weighted average interest rate on the $87,414 of demand loans was 5.7% at
December 28, 1997. In addition, the company has approximately $200,000
available under several interest rate alternatives in unused lines of credit.
Interest expense in 1997, 1996 and 1995 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 1998 are as follows: 1999 - $44,084; 2000 - $36,776; 2001
- - $30,760; 2002 - $65,668.
The company has entered into certain operating leases which require minimum
annual payments as follows: 1998 - $15,707; 1999 - $14,159; 2000 - $12,701;
2001 - $10,614; 2002 - $9,323. The total rental expense for all operating
leases was $15,311, $13,288 and $11,855 in 1997, 1996 and 1995, respectively.
SHAREHOLDERS' EQUITY AND STOCK COMPENSATION PLANS 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.
Effective June 16, 1997 the Board of Directors approved a 2-for-1 stock split
effected in the form of a stock dividend. All per share and appropriate share
data in the accompanying financial statements have been restated to reflect the
stock split.
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. Earnings per share would
have been reduced less than $.02 in both 1997 and 1996 had compensation expense
for stock options been determined based on the fair value at the grant date.
The weighted average fair value of options granted during 1997 and 1996 of
$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 2,309,515 shares
of common stock at prices ranging from $9.17 to $38.75 per share with a
weighted average exercise price of $18.93 per share and a weighted average
remaining contractual life of 6 years. Such options are presently exercisable
with respect to 1,245,740 shares at a weighted average exercise price of
$14.42. Options to purchase 421,175, 40,000 and 766,000 shares of common stock
were granted at weighted average exercise prices of $30.39, $24.63 and $20.35,
in 1997, 1996 and 1995, respectively. Options exercised were 457,752, 251,330
and 411,226 at weighted average exercise prices of $13.05, $13.49 and $10.69 in
1997, 1996 and 1995, respectively.
INCOME TAXES
The provision for income taxes consisted of the following:
1997 1996 1995
- --------------------------------------------------------
Current
Federal $24,557 $22,534 $17,323
State 2,622 2,438 2,177
Foreign 7,624 5,356 4,169
Deferred 1,530 (711) 1,061
- --------------------------------------------------------
$36,333 $29,617 $24,730
- --------------------------------------------------------
The deferred income taxes provided and the balance sheet amounts of $34,273
in 1997 and $31,971 in 1996 related substantially to the methods of accounting
for depreciation. Income taxes paid were $29,581, $28,210 and $16,565 in 1997,
1996 and 1995, respectively.
A reconciliation of the company's effective tax rate to the U.S. statutory
rate is as follows:
1997 1996 1995
- --------------------------------------------------------
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes 1.7 1.8 1.9
Foreign income taxes (.7) (.5) (1.0)
Export sales benefit (1.6) (1.7) (1.7)
Other (.3) (.5) (.6)
- --------------------------------------------------------
Effective income tax rate 34.1% 34.1% 33.6%
- --------------------------------------------------------
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
7.7% in 1997 and 1996, an investment rate of 9% and a salary increase of 5%.
The discount rate was 6% for foreign plans.
Pension expense is summarized as follows:
1997 1996 1995
- --------------------------------------------------------
Domestic plans
Service cost $ 2,769 $ 2,485 $2,554
Interest cost 4,249 3,921 3,766
Actual return on
plan assets (12,065) (9,250) (7,285)
Net amortization
and deferral 6,779 4,653 3,755
Foreign plans 328 360 420
- --------------------------------------------------------
$ 2,060 $ 2,169 $3,210
- --------------------------------------------------------
24
7
The following table sets forth the funded status of the plans and the amounts
shown in the balance sheet:
1997 1996
- ------------------------------------------------------------------------
Domestic
Plan assets at fair value,
primarily common stock
and U.S. Government
obligations $ 69,300 $ 58,530
- ------------------------------------------------------------------------
Actuarial present value of
the benefit obligation
Vested (54,465) (52,135)
Non-vested (2,122) (2,330)
- ------------------------------------------------------------------------
Accumulated benefit
obligation (56,587) (54,465)
Projected effect of future
salary increases (6,058) (6,270)
- ------------------------------------------------------------------------
Total projected benefit
obligation (62,645) (60,735)
- ------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 6,655 (2,205)
Unrecognized--
Prior service cost (97) 661
Net gain (12,842) (4,106)
Transition asset (792) (894)
Unfunded foreign pension amounts (16,273) (5,200)
- ------------------------------------------------------------------------
Accrued pension liability $(23,349) $(11,744)
- ------------------------------------------------------------------------
The accrued pension liability includes the obligations assumed by the company
in 1997 in connection with acquisitions. In addition to the pension expense in
1996 the company recognized a curtailment expense of $3,840 in connection with
the disposition of product lines.
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 7.7% in 1997 and 1996 and an
initial health care cost trend rate of 10%, declining to 6% over a period of 5
years. Increasing the health care cost trend rate by one percentage point would
increase the accumulated postretirement benefit obligation by $1,305 and would
increase the 1997 postretirement benefit expense by $139.
Postretirement benefit expense is summarized as follows:
1997 1996 1995
- ---------------------------------------------------------------
Service cost $ 212 $ 148 $ 250
Interest cost 886 805 1,127
Net amortization and deferral 209 104 566
- ---------------------------------------------------------------
$1,307 $1,057 $1,943
- ---------------------------------------------------------------
The following table sets forth the accumulated obligation of the plans and
the amounts shown in the balance sheet:
1997 1996
- ----------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ (7,583) $ (8,639)
Fully eligible active plan
participants (1,607) (1,306)
Other active plan participants (3,356) (3,360)
- ----------------------------------------------------------------------
(12,546) (13,305)
Unrecognized--
Prior service cost (484) (541)
Transition obligation 6,279 6,698
Actuarial net gain (3,602) (2,705)
- ----------------------------------------------------------------------
Accrued postretirement liability $(10,353) $ (9,853)
- ----------------------------------------------------------------------
In addition to the postretirement benefit expense in 1996 the company
recognized a curtailment expense of $4,471 in connection with the disposition
of product lines.
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:
1997 1996 1995
- ------------------------------------------------------------------------
Revenues $373,437 $314,141 $283,892
Identifiable assets $458,880 $326,993 $281,429
Operating profit $ 35,077 $ 28,408 $ 27,053
- ------------------------------------------------------------------------
Export sales from the United States to unaffiliated customers approximated
$130,600, $98,500 and $90,200 for 1997, 1996 and 1995, respectively. Export
sales included $45,600, $41,200 and $39,900 to Canada in 1997, 1996 and 1995,
respectively.
25
8
REPORT OF INDEPENDENT ACCOUNTANTS [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
28, 1997 and December 29, 1996 and the results of their operations and their
cash flows for each of the three years in the period ended December 28, 1997,
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/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Philadelphia, Pennsylvania
February 11, 1998
26
9
QUARTERLY FINANCIAL DATA
(unaudited)
Quarter ended
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share) March June Sept. Dec.
- --------------------------------------------------------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $269,344 $280,263 $281,757 $314,409
Gross profit 83,205 86,321 84,692 96,775
Income before taxes 25,578 28,057 21,176 31,594
Net income 16,677 18,349 13,828 21,218
Earnings per share
Basic .46 .50 .38 .57
Diluted .45 .49 .36 .56
Cash dividends per share .088 .100 .100 .100
Price range of common stock 23 1/4 - 27 25 3/4 - 33 1/4 30 1/2 - 35 3/4 34 5/8 - 39 3/4
- --------------------------------------------------------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $234,448 $238,394 $215,144 $243,197
Gross profit 73,338 75,104 66,371 76,183
Income before taxes 22,816 23,181 15,413 25,369
Net income 14,852 15,137 10,049 17,124
Earnings per share
Basic .42 .43 .29 .47
Diluted .42 .42 .28 .46
Cash dividends per share .078 .088 .088 .088
Price range of common stock 19 3/4 - 23 3/8 21 1/4 - 24 3/8 22 - 25 23 3/8 - 26
- --------------------------------------------------------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------------------------------------------------------
Revenues $226,893 $233,888 $210,340 $241,568
Gross profit 71,774 74,224 64,464 74,200
Income before taxes 18,974 20,467 12,696 21,463
Net income 12,333 13,304 8,252 14,981
Earnings per share
Basic .35 .38 .24 .43
Diluted .35 .37 .23 .42
Cash dividends per share .068 .078 .078 .078
Price range of common stock 20 - 20 1/4 19 3/4 - 22 7/8 19 1/8 - 22 3/4 19 - 22 1/2
- --------------------------------------------------------------------------------------------------------------------------------
27
10
TELEFLEX INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL AND INDUSTRY SEGMENT DATA
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues
Commercial $ 497,366 $422,443 $403,637
Medical 323,114 307,555 293,341
Aerospace 325,293 201,185 215,711
- --------------------------------------------------------------------------------------------------------------------
Net sales 1,145,773 931,183 912,689
Other income(a) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total revenues $1,145,773 $931,183 $912,689
- --------------------------------------------------------------------------------------------------------------------
Operating profit
Commercial $ 61,562 $ 57,849 $ 59,719
Medical 35,466 34,630 30,237
Aerospace 38,787 21,007 12,683
- --------------------------------------------------------------------------------------------------------------------
135,815 113,486 102,639
Less:
Interest expense, net 14,435 13,876 18,632
Corporate expenses, net of other income 14,975 12,831 10,407
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 106,405 86,779 73,600
Estimated taxes on income 36,333 29,617 24,730
- --------------------------------------------------------------------------------------------------------------------
Net income $ 70,072 $ 57,162 $ 48,870
- --------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $1.91 $1.61 $1.40
Diluted $1.86 $1.58 $1.37
Cash dividends per share $.39 $.34 $.30
Net income as a percent of revenues 6.1% 6.1% 5.4%
Percent of net sales
Commercial 44% 45% 44%
Medical 28% 33% 32%
Aerospace 28% 22% 24%
Average number of common and common equivalent
shares outstanding
Basic 36,759 35,482 34,885
Diluted 37,661 36,197 35,574
Average number of employees 10,830 9,373 9,553
- --------------------------------------------------------------------------------------------------------------------
SALES BY BUSINESS SEGMENT
(millions)
Aerospace Medical Commercial Total
--------- ------- ---------- -----
1987 113.5 26.0 130.3 269.8
1988 132.4 38.0 153.2 323.6
1989 139.2 42.4 174.0 355.6
1990 162.7 115.8 162.6 441.1
1991 180.4 130.5 168.6 479.5
1992 177.3 179.4 210.4 567.1
1993 202.1 180.6 284.1 666.8
1994 202.9 253.0 356.7 812.6
1995 215.7 293.4 403.6 912.7
1996 201.2 307.6 422.4 931.2
1997 325.3 323.1 497.4 1,145.8
28
11
- --------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands, except per share and employee data)
$356,708 $284,106 $210,464 $168,598 $162,646 $173,957 $153,144 $130,310
253,020 180,623 179,376 130,540 115,756 42,406 38,032 25,928
202,944 202,067 177,292 180,399 162,731 139,262 132,413 113,540
- --------------------------------------------------------------------------------------------------------------------
812,672 666,796 567,132 479,537 441,133 355,625 323,589 269,778
-- -- 3,206 3,472 3,080 4,441 4,634 1,988
- --------------------------------------------------------------------------------------------------------------------
$812,672 $666,796 $570,338 $483,009 $444,213 $360,066 $328,223 $271,766
- --------------------------------------------------------------------------------------------------------------------
$ 53,324 $ 37,794 $ 25,754 $ 19,996 $ 22,224 $ 22,025 $ 26,794 $ 25,239
32,386 21,486 25,463 19,900 16,183 5,782 3,755 2,107
5,367 14,906 16,100 21,722 20,781 20,711 16,548 15,095
- --------------------------------------------------------------------------------------------------------------------
91,077 74,186 67,317 61,618 59,188 48,518 47,097 42,441
18,361 14,466 15,482 13,765 12,401 6,886 6,225 4,886
9,725 7,410 3,185 2,519 3,880 2,395 4,493 5,894
- --------------------------------------------------------------------------------------------------------------------
62,991 52,310 48,650 45,334 42,907 39,237 36,379 31,661
21,795 18,624 16,638 15,527 14,340 12,440 12,370 11,990
- --------------------------------------------------------------------------------------------------------------------
$ 41,196 $ 33,686 $ 32,012(b) $ 29,807 $ 28,567 $ 26,797 $ 24,009 $ 19,671
- --------------------------------------------------------------------------------------------------------------------
$1.20 $.99 $.95 $.90 $.87 $.83 $.75 $.61
$1.17 $.98 $.93 $.88 $.87 $.82 $.74 $.60
$.26 $.23 $.21 $.20 $.18 $.16 $.13 $.11
5.1% 5.1% 5.6% 6.2% 6.4% 7.4% 7.3% 7.2%
44% 43% 37% 35% 37% 49% 47% 48%
31% 27% 32% 27% 26% 12% 12% 10%
25% 30% 31% 38% 37% 39% 41% 42%
34,373 33,958 33,557 33,062 32,667 32,321 31,986 32,319
35,061 34,533 34,264 33,701 32,952 32,805 32,487 32,919
8,740 7,920 6,920 6,160 5,860 5,080 4,350 3,760
- --------------------------------------------------------------------------------------------------------------------
(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.
OPERATING PROFIT BY BUSINESS SEGMENT
(millions)
Aerospace Medical Commercial Total
--------- ------- ---------- -----
1987 15.1 2.1 25.2 42.4
1988 16.5 3.8 26.8 47.1
1989 20.7 5.8 22.0 48.5
1990 20.8 16.2 22.2 59.2
1991 21.7 19.9 20.0 61.6
1992 16.1 25.5 25.7 67.3
1993 14.9 21.5 37.8 74.2
1994 5.4 32.4 53.3 91.1
1995 12.7 30.2 59.7 102.6
1996 21.0 34.6 57.9 113.5
1997 38.8 35.5 61.6 135.8
29
12
TELEFLEX INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL AND INDUSTRY SEGMENT DATA (continued)
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Identifiable assets
Commercial $ 351,345 $227,594 $201,808
Medical 333,698 320,699 331,349
Aerospace 276,708 194,305 183,636
Corporate 117,414 115,256 68,378
- --------------------------------------------------------------------------------------------------------------------
Total assets $1,079,165 $857,854 $785,171
- --------------------------------------------------------------------------------------------------------------------
Capital expenditures
Commercial $ 22,570 $ 12,821 $ 15,445
Medical $ 10,611 $ 10,421 $ 12,107
Aerospace $ 40,992 $ 16,767 $ 2,794
Depreciation and amortization
Commercial $ 14,335 $ 11,907 $ 11,446
Medical $ 18,459 $ 16,267 $ 15,087
Aerospace $ 14,440 $ 9,827 $ 10,471
Long-term borrowings $ 237,562 $195,945 $196,844
Shareholders' equity $ 463,753 $409,176 $355,364
Working capital $ 271,570 $269,355 $252,651
Current ratio 1.9 2.4 2.3
Book value per share $12.49 $11.30 $10.13
Return on average shareholders' equity 16.1% 15.0% 14.7%
- --------------------------------------------------------------------------------------------------------------------
STOCK PRICE
LOW HIGH
---- -----
1987 5.79 11.63
1988 7.13 10.21
1989 9.38 12.92
1990 8.33 12.08
1991 9.81 17.18
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
30
13
- ----------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share)
$184,971 $158,206 $142,041 $101,187 $ 84,678 $ 90,557 $ 83,601 $ 60,099
311,547 266,239 206,562 194,609 147,954 125,635 34,819 28,997
188,348 202,130 142,523 141,104 143,419 130,762 107,524 108,769
25,923 14,001 43,805 40,793 49,049 19,708 38,172 28,042
- ----------------------------------------------------------------------------------------------------------
$710,789 $640,576 $534,931 $477,693 $425,100 $366,662 $264,116 $225,907
- ----------------------------------------------------------------------------------------------------------
$ 13,489 $ 7,967 $ 7,386 $ 7,505 $ 5,581 $ 5,507 $ 8,880 $ 6,065
$ 7,029 $ 7,361 $ 5,316 $ 7,138 $ 4,236 $ 2,373 $ 960 $ 2,360
$ 4,538 $ 8,865 $ 6,384 $ 5,585 $ 7,166 $ 10,701 $ 5,228 $ 6,446
$ 9,930 $ 9,251 $ 6,262 $ 5,633 $ 5,369 $ 4,715 $ 3,675 $ 3,038
$ 11,694 $ 8,030 $ 6,505 $ 4,725 $ 3,999 $ 1,693 $ 1,455 $ 1,097
$ 10,771 $ 10,176 $ 8,002 $ 7,366 $ 7,024 $ 5,777 $ 5,556 $ 5,272
$190,499 $183,504 $134,600 $119,370 $112,941 $106,128 $ 57,104 $ 55,013
$309,024 $269,790 $240,467 $211,702 $187,875 $160,038 $136,328 $115,517
$220,544 $171,397 $166,803 $131,589 $133,840 $112,325 $ 98,217 $ 90,270
2.3 2.1 2.4 2.1 2.3 2.4 2.6 2.8
$8.94 $7.90 $7.12 $6.37 $5.72 $4.94 $4.25 $3.62
14.2% 13.2% 14.2% 14.9% 16.4% 18.1% 19.1% 18.2%
- ----------------------------------------------------------------------------------------------------------
FOREIGN/DOMESTIC SALES
Foreign* Domestic Total
--------- -------- ----------
1987 42,003 227,775 269,778
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
* Per Business Segments footnote
31
14
TELEFLEX INCORPORATED AND SUBSIDIARIES
FINANCIAL GOALS
The company's major financial objectives are to achieve a 15% to 20% annual
growth rate in revenues and net income and to generate a 20% return on average
shareholders' equity. Results for 1997 exceeded these goals as both revenues
and net income grew by 23%. Over the last five years revenues have grown by a
compounded rate of 15% and net income by 17%. The 1997 return on average
shareholders' equity was 16% and has improved in each of the last four years.
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
either geographically, by original equipment manufacturers versus aftermarket
customers, or by participating in different markets. As a result, the company's
total operating profit has increased in each of the last five years despite
cyclical downturns in each of the segments.
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 approximately
half the growth over time will be achieved through expansion of the core
product lines with the remainder derived externally. Over the past five years,
the company's internal growth has accounted for less than half of its overall
growth. During the same time the company has invested approximately $400
million for acquisitions which have accounted for the remainder of the revenue
increase. During 1997, the company purchased businesses with annualized sales
of approximately $200 million, $90 million of which is included in the 1997
financial statements. The largest of these was United Parts Group N.V. (United
Parts) a European manufacturer of driver control systems. These acquisitions
fit strategically with the company's businesses and brought new technologies,
capabilities and market opportunities which 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.
REVENUES
(millions)
93 666.8
94 812.7
95 912.7
96 931.2
97 1145.8
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.
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 $300 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, whose businesses are not particularly capital intensive, spends
approximately 4% of sales annually on plant and equipment. This past year was
an exception, as investments were made to support the explosive growth in the
aerospace markets.
With respect to dividends, the company's policy is to pay 20% of trailing
twelve months' earnings. The policy has been adhered to since the first cash
payment was made in 1977.
RESULTS OF OPERATIONS
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
32
15
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
profit as a percentage of sales (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. Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" became effective during the fourth quarter of 1997. The standard
requires presentation of both basic and diluted earnings per share. The
difference between basic and diluted earnings per share is the number of shares
used in the denominator of the calculation. The basic earnings per share
calculation uses the weighted average number of common shares outstanding
during the period. The diluted per share calculation for the company adds to
the number of shares dilutive stock options outstanding during the period.
1996 VS. 1995: Revenues increased 2% in 1996 to $931.2 million from $912.7
million in 1995. The increase was the result of gains in the Commercial and
Medical segments which offset a decline in the Aerospace Segment brought about
by several product line dispositions. Excluding the dispositions, sales
increased 8% in 1996 of which acquisitions accounted for less than half. For
1996 the Commercial, Medical and Aerospace segments comprised 45%, 33% and 22%
of the company's net sales, respectively. Foreign operations represented 34% of
the company's revenues, increased 11% over 1995 and were not significantly
affected by changes in foreign currency exchange rates.
Gross profit margin remained relatively flat in 1996 as increases in the
Aerospace Segment and, to a lesser extent, the Medical Segment offset a decline
in the Commercial Segment. Selling, engineering and administrative expenses
declined from 21% of sales in 1995 to 20% of sales in 1996 resulting from
improvements in all three segments, particularly Aerospace.
Operating profit increased 11% in 1996 to $113.5 million from $102.6
million in 1995 and operating margin increased to 12% from 11%. Increases in
both operating profit and margins in the Aerospace Segment and, to a lesser
extent, the Medical Segment more than offset declines in the Commercial
Segment. For 1996, the Commercial, Medical and Aerospace segments comprised
51%, 31% and 18% of the company's operating profit, respectively.
Net income in 1996 increased 17% to $57.2 million and earnings per share
increased 15% to $1.58 from $1.37 in 1995. The Aerospace product line
dispositions resulted in a $.04 increase in earnings per share in 1996.
INTEREST EXPENSE AND INCOME TAX EXPENSE
Interest expense, which is presented net of interest income, increased in 1997
as the effect of lower interest rates was offset by the decline in invested
cash balances. Interest expense declined in 1996 due to lower interest rates on
total borrowings and increased interest income on higher cash balances during
the year. Interest expense as a percent of sales decreased in 1997 to 1.3% from
1.5% in 1996. Interest expense is expected to be higher in 1998 as a result of
the borrowings incurred to finance the acquisition of United Parts in the
fourth quarter of 1997.
The effective income tax rate was 34.1% in both 1997 and 1996 and 33.6% in
1995. The mix of the company's foreign taxable income in 1997 and 1996 was
comparable while in 1995 a higher proportion of income was earned in countries
with relatively lower income tax rates.
COMMERCIAL SEGMENT
The Commercial Segment designs and manufactures proprietary mechanical 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.
OPERATING PROFIT
(millions)
93 74.2
94 91.1
95 102.6
96 113.5
97 135.8
33
16
TELEFLEX INCORPORATED AND SUBSIDIARIES
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.
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 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.
In December 1997 the company acquired the shares of United Parts which
manufactures gear shift systems and other components for the European
automotive market. The acquisition will add approximately $115 million in
revenues in 1998; however, profits are not expected to be significant due to
the costs of integrating the new business into the existing automotive
operations.
NET INCOME
(millions)
93 33.7
94 41.2
95 48.9
96 57.2
97 70.1
Investment in total assets in this segment grew by over $100 million
primarily as a result of the United Parts acquisition.
1996 VS. 1995: Sales in the Commercial Segment increased 5% in 1996 from $403.6
million to $422.4 million reflecting an increase in the Automotive product line
which offset a decline in the Marine product line while Industrial product line
sales were flat. The Automotive product line sales increased from acquisitions
and, to a lesser extent, from internal growth. Within the Marine product line,
a decrease in sales of marine electronic products was minimized by an increase
in sales of controls and by sales of new products. Sales were flat in 1996
compared with 1995 in the Industrial product line as increased sales of
flexible hose mitigated declines in volume of light-duty cable controls.
Operating profit decreased 3% in 1996 to $57.8 million from $59.7 million and
operating margin declined to 14% from 15%. Operating profit and operating
margin were lower in all product lines in this Segment with the exception of
the Automotive product line which increased its operating profit. The
increased operating profit in the Automotive product line resulted from the
acquisitions while operating margin declined because of the continued downward
pressure on prices and the integration of the acquisitions into the existing
business. Within the Marine product line the declines were the result of the
reduced volume of marine electronic products and additional expenses associated
with investments in new products. The decreases in the Industrial product line
were the result of start-up costs incurred in connection with customer-focused
manufacturing facilities in the U.K. and Tennessee.
34
17
Assets increased in 1996 due primarily to a fourth quarter acquisition of a
U.K. manufacturer of automotive cable controls.
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 long 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 and
conducts its business primarily in U.S. dollars.
1997 VS. 1996: In 1997 Medical Segment sales increased by 5% to $323.1 million
from $307.6 million in 1996. 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
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.
1996 VS. 1995: In 1996 Medical Segment sales increased 5% to $307.6 million
from $293.3 million from geographic expansion of Hospital Supply sales in
certain European markets and, to a lesser extent, sales of new products. Sales
in the Surgical Devices product line were unchanged from the prior year.
Operating profit increased 15% in 1996 to $34.6 million from $30.2 million
and operating margin improved to 11% from 10%. The operating profit and
operating margin of both the Hospital Supply and Surgical Devices product lines
increased in 1996. Higher volume and lower manufacturing costs in Hospital
Supply, cost reduction efforts initiated during the prior year in Surgical
Devices and a reduction of administrative expenses in both product lines
resulted in the improvements.
Assets decreased in 1996 due to a reduction of inventory primarily in the
Surgical Devices product line and weaker foreign currencies.
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.
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; cargo systems, coatings, repair services and turbine components
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
DIVIDENDS
PER SHARE
(Dollars)
93 23
94 26
95 30
96 34
97 39
35
18
TELEFLEX INCORPORATED AND SUBSIDIARIES
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 margins improved from a little over 10% in 1996 to
nearly 12% in 1997. The increase in both profits and margins 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 an airfoil
repair facility in Singapore.
1996 VS. 1995: During the first quarter of 1996, the company disposed of two
product lines in the Aerospace Segment for proceeds of $37.6 million resulting
in a $2.1 million pre-tax gain. The gain has been reported as a reduction of
operating expenses in the Statement of Income and is included in the Aerospace
Segment operating profit. The product lines had combined sales and operating
profit in 1995 of $50.0 million and $3.0 million, respectively. The
dispositions were part of the structural realignment in the Aerospace Segment
which began in 1995.
Sales in the Aerospace Segment decreased 7% from $215.7 million in 1995 to
$201.2 million in 1996. Excluding the dispositions, sales increased 21% in
1996. The increase resulted from gains in all product lines including coatings,
repair services and turbine components. The increase in sales of turbine
components which includes both flight and ground-based turbine engine products
was aided by the fourth quarter acquisition of an electro-chemical machining
company with sales of approximately $24.0 million in 1995.
Operating profit in 1996 increased 66% from $12.7 million to $21.0 million
and operating margin increased from 6% to 10%. These gains were the result of
the volume increases, improvements in the repair services product line, the
ongoing cost reduction and productivity improvement efforts and the gain on
disposition of the product lines.
Assets increased in 1996 from the acquisition and additional inventory
related to the repair services product line partially offset by the sale of
assets associated with the divested product lines.
LIQUIDITY AND CAPITAL RESOURCES
The company continued to generate high levels of cash from operations. In 1997
cash flows from operating activities grew to $80.8 million compared to $71.6
million in 1996 and $70.8 million in 1995. The increase in 1997 was due to
higher net income and non-cash depreciation and amortization offset by working
capital needs related to incremental sales volume. The increase in 1996 was due
to higher net income offset by the timing of working capital needs primarily
accounts receivable related to volume and the non-cash gain on the disposition
of product lines. In addition to the cash generated from operations the company
has approximately $200 million in unused lines of credit available which
provide the ability to pursue strategic growth opportunities.
Total borrowings for the company increased nearly $90 million in 1997 as
long-term debt to total capitalization increased to 34% from 32% in 1996. The
increase was primarily a result of the year end acquisition of United Parts.
Subsequent to year end, certain assets of United Parts, the non-strategic Truck
Systems and Components group, were sold for $36 million in cash and the related
borrowings reduced. Approximately 70% of the company's total borrowings of $350
million are denominated in currencies other than the U.S. dollar which provides
a natural hedge for currency fluctuations. In addition to the natural hedge
positions, the company from time to time employs a variety of financial
instruments to manage exposures to changes in interest rates and currency
exchange rates. The financial instruments are contracted for periods consistent
with related underlying exposures and do not constitute positions independent
of those exposures.
Cash Flow from Operations
(millions)
- -------------------------
1991 31.8
1992 43.7
1993 46.4
1994 57.7
1995 70.8
1996 71.5
1997 80.8
During 1997 the company invested $74.6 million in plant and equipment
compared to $40.5 million in 1996 and $30.7 million in 1995. The 1997 increase
was primarily attributable to capacity expansion in the Aerospace Segment,
including a new repairs plant in Singapore that will commence operations in the
first quarter of 1998. Capital expenditures in the Commercial and Medical
Segments of $22.6 million and $10.6 million, respectively were incurred to
upgrade and maintain plant and equipment. Expenditures in 1996 related
primarily to expansion efforts in the Aerospace Segment and to support new
product and productivity improvements.
36
19
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 United Parts.
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.
SHAREHOLDERS' EQUITY
Shareholders' Equity increased to $463.8 million at the end of 1997 from $409.2
million at prior year's end. Book value per share increased to $12.49 at
December 28, 1997 compared to $11.30 at December 29, 1996. During 1997 the per
share dividend was increased 15% to $.39 per share from $.34 per share in 1996.
In April 1997 the company announced a 2-for-1 stock split, distributed on June
16, 1997 in the form of a stock dividend. All the common share and per share
amounts in this report have been restated to reflect the stock split.
ENVIRONMENTAL MATTERS
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.
Capitalization
(millions)
--------------
Equity LTD Total
------ --- -----
1991 211.7 119.4 331.1
1992 240.5 134.6 375.1
1993 269.8 183.5 453.3
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
Capital Expenditures
(millions)
Aerospace Medical Commercial Total
--------- ------- ---------- -----
1991 5.6 7.1 7.5 20.2
1992 6.4 5.3 7.4 19.1
1993 8.9 7.3 8.0 24.2
1994 4.5 7.1 13.5 25.1
1995 2.8 12.1 15.4 30.3
1996 16.8 10.4 12.8 40.0
1997 41.0 10.6 22.6 74.2
OTHER MATTERS
The company is currently working to resolve the potential impact of the "year
2000" on the processing of date sensitive information by the company's
computerized information systems. Certain computer programs have been written
using two digits rather than four to define a year which could, for example,
result in a computer system incorrectly recognizing the year 2000 as the year
1900. Costs of resolving the year 2000 matter are not currently expected to
have a material adverse impact on financial position or results of operations.
37