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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ------------------ TO ------------------
COMMISSION FILE NUMBER 1-5353
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TELEFLEX INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-1147939
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(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
630 WEST GERMANTOWN PIKE, SUITE 450
PLYMOUTH MEETING, PA 19462
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(610) 834-6301
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(TELEPHONE NUMBER INCLUDING AREA CODE)
NONE
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 27,1999
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Common Stock, $1.00 Par Value 37,890,384
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
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(DOLLARS IN THOUSANDS)
JUNE 27, DEC. 27,
1999 1998
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ASSETS
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Current assets
Cash and cash equivalents................................. $ 32,351 $ 66,689
Accounts receivable less allowance for doubtful
accounts............................................... 329,418 295,369
Inventories............................................... 234,782 235,869
Prepaid expenses.......................................... 21,501 19,015
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618,052 616,942
Property, plant and equipment, at cost, less accumulated
depreciation.............................................. 445,497 431,756
Investments in affiliates................................... 50,620 50,932
Intangibles and other assets................................ 138,316 116,287
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$1,252,485 $1,215,917
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
Current portion of borrowings and demand loans............ $ 91,007 $ 91,651
Accounts payable and accrued expenses..................... 201,536 194,525
Income taxes payable...................................... 25,049 25,303
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317,592 311,479
Long-term borrowings........................................ 275,672 275,581
Deferred income taxes and other............................. 86,198 94,407
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679,462 681,467
Shareholders' equity........................................ 573,023 534,450
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$1,252,485 $1,215,917
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
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(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
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Revenues........................................ $421,126 $363,011 $813,316 $708,771
-------- -------- -------- --------
Cost of sales................................... 299,725 259,834 580,964 505,569
Operating expenses.............................. 77,608 66,383 149,628 131,372
Interest expense................................ 4,501 4,261 8,817 8,746
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381,834 330,478 739,409 645,687
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Income before taxes............................. 39,292 32,533 73,907 63,084
Provision for taxes on income................... 13,438 11,289 24,999 21,982
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Net income...................................... $ 25,854 $ 21,244 $ 48,908 $ 41,102
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Earnings per share
Basic......................................... $ 0.69 $ 0.57 $ 1.30 $ 1.10
Diluted....................................... $ 0.67 $ 0.55 $ 1.27 $ 1.07
Dividends per share............................. $ 0.130 $ 0.115 $ 0.245 $ 0.215
Average number of common and common equivalent
shares outstanding
Basic......................................... 37,743 37,365 37,690 37,285
Diluted....................................... 38,528 38,459 38,459 38,390
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TELEFLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
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JUNE 27, JUNE 28,
1999 1998
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Cash flows from operating activities:
Net income................................................ $48,908 $41,102
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization.......................... 32,567 29,812
(Increase) in accounts receivable...................... (39,932) (25,907)
(Increase) decrease in inventory....................... (3,892) 4,400
(Increase) decrease in prepaid expenses................ (2,633) 2,846
Increase in accounts payable and accrued expenses...... 9,966 11,696
(Decrease) increase in income taxes payable............ (150) 1,026
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44,834 64,975
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Cash flows from financing activities:
Proceeds from new borrowings.............................. 32,999 11,713
Reduction in long-term borrowings......................... (21,160) (2,460)
Increase (decrease) in current borrowings and demand
loans.................................................. 5,748 (30,904)
Proceeds from stock compensation plans.................... 2,408 2,674
Dividends................................................. (9,253) (8,008)
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10,742 (26,985)
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Cash flows from investing activities:
Expenditures for plant assets............................. (40,690) (35,018)
Payments for businesses acquired.......................... (39,445) (5,262)
Proceeds from sale of businesses and assets............... 35,868
Investments in affiliates................................. (8,946) (836)
Other..................................................... (833) 2,441
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(89,914) (2,807)
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Net (decrease) increase in cash and cash equivalents........ (34,338) 35,183
Cash and cash equivalents at the beginning of the period.... 66,689 30,702
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Cash and cash equivalents at the end of the period.......... $32,351 $65,885
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TELEFLEX INCORPORATED
STATEMENT OF COMPREHENSIVE INCOME
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THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
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Net income.......................................... $25,854 $21,244 $48,908 $41,102
Cumulative translation adjustment................... (584) (664) (3,091) (212)
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Comprehensive income................................ $25,270 $20,580 $45,817 $40,890
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1
The accompanying unaudited condensed consolidated financial statements for
the three months and six months ended June 27, 1999 and June 28, 1998 contain
all adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to present fairly the financial position,
results of operations and cash flows for the periods then ended in accordance
with the current requirements for Form 10-Q.
NOTE 2
At June 27, 1999, 2,573,034 shares of common stock were reserved for
issuance under the company's stock compensation plans.
NOTE 3
Inventories consisted of the following:
JUNE 27, DEC. 27,
1999 1998
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Raw materials.......................................... $ 83,840 $ 80,891
Work-in-process........................................ 45,009 41,646
Finished goods......................................... 105,933 113,332
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$234,782 $235,869
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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NOTE 4
BUSINESS SEGMENT INFORMATION:
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
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Sales
Commercial........................................ $204,301 $170,797 $388,797 $333,391
Medical........................................... 94,395 84,911 182,952 164,255
Aerospace......................................... 122,430 107,303 241,567 211,125
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Total..................................... $421,126 $363,011 $813,316 $708,771
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Operating Profit
Commercial........................................ $ 22,072 $ 18,073 $ 41,691 $ 36,127
Medical........................................... 12,952 10,285 23,255 19,782
Aerospace......................................... 13,294 12,884 26,562 24,570
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48,318 41,242 91,508 80,479
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Less:
Interest expense.................................. 4,501 4,261 8,817 8,746
Corporate expenses................................ 4,525 4,448 8,784 8,649
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Income before taxes................................. 39,292 32,533 73,907 63,084
Taxes on income..................................... 13,438 11,289 24,999 21,982
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Net income.......................................... $ 25,854 $ 21,244 $ 48,908 $ 41,102
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MANAGEMENT'S ANALYSIS OF QUARTERLY FINANCIAL DATA
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RESULTS OF OPERATIONS:
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Revenues increased 16% in the second quarter of 1999 to $421.1 million from
$363.0 million in 1998. Approximately one-fourth of the growth was the result of
acquisitions while the balance was generated internally. Sales increased in the
Commercial, Medical and Aerospace segments by 20%, 11%, and 14%, respectively.
The Commercial, Medical and Aerospace segments comprised 49%, 22% and 29% of the
company's net sales, respectively.
The gross profit margin increased slightly to 28.8% in 1999 compared with
28.4% in 1998. The increase was due to higher gross profit margin in the Medical
and Commercial segments while the Aerospace Segment remained constant. Operating
expenses as a percentage of sales increased slightly to 18.4% in 1999 compared
with 18.3% in 1998 resulting from increases in the Aerospace and Commercial
segments which offset a decrease in the Medical Segment.
Operating profit increased 17% in the second quarter from $41.2 million in
1998 to $48.3 million in 1999 from gains in all three segments. Operating margin
increased slightly from 11.4% in 1998 to 11.5% in 1999 as increases in
Commercial and Medical offset a decline in Aerospace. The Commercial, Medical
and Aerospace segments comprised 46%, 27% and 27% of the company's operating
profit, respectively.
Net income and diluted earnings per share for the quarter were $25.9
million and $0.67 which represents a 22% increase for both compared with 1998.
Interest expense increased in 1999 as a result of an increase in average debt.
The effective income tax rate was 34.2% in 1999 compared with 34.7% in 1998. The
decline resulted from a higher proportion of income in 1999 earned in countries
with relatively lower tax rates.
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INDUSTRY SEGMENT REVIEW:
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Sales in the Commercial Segment increased 20% from $170.8 million in 1998
to $204.3 million in 1999 resulting from increases in all three product lines,
Automotive, Marine and Industrial. New products in the Marine and Automotive
product lines and the strength in the domestic automotive market contributed to
the increase. Operating profit increased from $18.1 million in 1998 to $22.1
million in 1999 and operating margin increased slightly from 10.6% to 10.8%. All
three product lines, Automotive, Marine and Industrial, reported increases in
operating profit. An increase in the Marine product line operating margin offset
declines in Automotive from the continued investment in engineering, product
launch and plant start-up costs for the adjustable pedal system.
The Medical Segment sales increased 11% from $84.9 million in 1998 to $94.4
million in 1999 due to gains in both the Hospital Supply and Surgical Devices
product lines. The gain resulted primarily from acquisitions, first in Hospital
Supply to extend the company's distribution in Europe, and also in Surgical
Devices adding to instrument management services and distribution in the United
States. Operating profit increased 26% from $10.3 million to $13.0 million from
both Hospital Supply and Surgical Devices while operating margin increased to
13.7% from 12.1% resulting from increased sales of higher margin products.
The Aerospace Segment sales increased 14% from $107.3 million in 1998 to
$122.4 million in 1999 primarily from gains in repairs and manufactured
components, which offset a decline in cargo systems. Operating profit increased
3% due to the sales increase, however, operating margin declined from 12.0% to
10.9% resulting from the decline in cargo systems volume, lower margins in the
growing industrial turbo-machinery product line and from the heavier proportion
of sales from the repairs product line where profits are shared with a joint
venture partner.
CASH FLOWS FROM OPERATIONS AND LIQUIDITY:
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Additional working capital related to volume, which as a percentage of
sales improved over the prior year, resulted in a decrease in cash flows from
operating activities of $20.1 million. Long-term borrowings remained steady at
$275.7 million at June 27, 1999 as compared to $275.6 million at December 27,
1998. The ratio of long-term borrowings to total capitalization improved from
34% at December 27, 1998 to 32% at June 27, 1999.
YEAR 2000:
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Background
The "year 2000 issue" refers to computer programs written using two digits
rather than four to define the year. This could result in computer systems being
unable to distinguish between the year 1900 and the year 2000. The remediation
of non-compliant computer systems before the year 2000 by the company, and its
suppliers and customers is necessary to minimize the possibility of systems
failures causing disruptions in business operations.
Project
The company began its year 2000 remediation project in 1997 comprising
seven phases: (1) awareness, (2) inventory, (3) assessment, (4) analysis, (5)
conversion, (6) implementation and (7) post implementation. Each of the
company's more than eighty business units is responsible for carrying out its
own remediation plan with assistance and monitoring by a full time "year 2000
project office." These remediation plans include requirements to develop and
test contingency procedures in the event of unforeseen system failures due to
year 2000 issues. These contingency plans may include identifying alternate
suppliers for the company's significant production materials and supplies,
adjusting factory production schedules and other measures considered appropriate
by management. The company's goal is to achieve compliance in all of its
internal business information systems by the third quarter of 1999. At June 27,
1999 more than two-thirds of the activities, including replacements, upgrades
and modifications in the normal course of business, necessary for company-wide
compliance have been completed. The project also encompasses remediation of
non-information systems
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such as embedded chips within the company's production processes and
infrastructure; and, customer and supplier readiness. As part of its overall
business risk assessment, the company has sent year 2000 readiness surveys to
its significant customers and suppliers. The surveys are being continuously
updated and, where necessary, will be supplemented with on-site inspection of
significant customers and suppliers.
Costs
The aggregate effort directed towards year 2000 remediation will be
approximately $10 to $12 million including the capitalized cost of computer
hardware and software systems and the redirected effort of the company's
existing resources. Approximately $8 million has been spent as of June 27, 1999
and has been funded by cash flows from operations.
Risks
Failure to correct a significant year 2000 issue could result in a
disruption of normal business operations. Due to the general uncertainty
inherent in the year 2000 issue, especially as it relates to the readiness of
customers and suppliers, a risk of a material adverse effect on the company's
future results of operations, liquidity and financial condition does exist. The
company believes that completion of its year 2000 project including scheduled
business system implementations will reduce the risk of significant disruption
of normal business operations. The company's operations are diversified among
over 80 separate business units. This diversified environment combined with
multiple customer and supplier relationships further reduces the risk of a
significant disruption to the company's operations.
FORWARD-LOOKING STATEMENTS:
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This quarterly report includes the company's current plans and expectations
and is based on information available to it. It relies on a number of
assumptions and estimates which could be inaccurate and which are subject to
risks and uncertainties.
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TELEFLEX INCORPORATED
PART II OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(A) Reports on form 8-K.
No reports on form 8-K were filed during the quarter.
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TELEFLEX INCORPORATED
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELEFLEX INCORPORATED
/s/ HAROLD L. ZUBER, JR.
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Harold L. Zuber, Jr.
Vice President and Chief
Financial Officer
/s/ STEPHEN J. GAMBONE
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Stephen J. Gambone
Controller and Chief
Accounting Officer
August 5, 1999
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