-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAXZVYqyRP9o2EfcIMdJi/hpfe7XqOvuCkbwQ31nm0+Mml4vUgYoYmefRoGSaTzf lwgXY8AOJXm5pSwsiPwBMw== 0000893220-98-001689.txt : 19981111 0000893220-98-001689.hdr.sgml : 19981111 ACCESSION NUMBER: 0000893220-98-001689 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEFLEX INC CENTRAL INDEX KEY: 0000096943 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 231147939 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05353 FILM NUMBER: 98742739 BUSINESS ADDRESS: STREET 1: 630 W GERMANTOWN PK STE 450 STREET 2: SUITE 450 CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462 BUSINESS PHONE: 2158346301 MAIL ADDRESS: STREET 1: 630 WEST GERMANTOWN PIKE STREET 2: SUITE 450 CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462 10-Q 1 FORM 10-Q / TELEFLEX INCORPORATED 1 SECURITIES AND EXCHANGE COMMISSION ---------------------------------- Washington, D.C. 20549 ---------------------- Form 10-Q --------- (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission File Number 1-5353 ----------------------------- TELEFLEX INCORPORATED ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 23-1147939 - ------------------------ ------------------------------------ (State of Incorporation) (IRS Employer Identification Number) 630 West Germantown Pike, Suite 450 Plymouth Meeting, PA 19462 --------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) (610) 834-6301 -------------------------------------- (Telephone Number Including Area Code) None ---------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X 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 September 27, 1998 - ----------------------------- --------------------------------- Common Stock, $1.00 Par Value 37,413,178
2 Teleflex Incorporated --------------------- Condensed Consolidated Balance Sheet ------------------------------------ (Dollars in Thousands)
Assets ------ Sept. 27, Dec. 28, 1998 1997 ------------- ------------- Current assets Cash and cash equivalents $76,048 $30,702 Accounts receivable less allowance for doubtful accounts 303,096 260,187 Inventories 233,757 218,538 Prepaid expenses 16,067 21,182 Assets held for sale 35,868 ---------- ----------- 628,968 566,477 Property, plant and equipment, at cost, less accumulated depreciation 401,985 364,013 Investments in affiliates 32,227 37,510 Intangibles and other assets 113,911 111,165 --------- ----------- $1,177,091 $1,079,165 ========== =========== Liabilities and shareholders' equity ------------------------------------ Current liabilities Current portion of borrowings and demand loans $112,218 $115,729 Accounts payable and accrued expenses 181,083 158,386 Estimated income taxes payable 29,183 20,792 --------- -------- 322,484 294,907 Long-term borrowings 256,283 237,562 Deferred income taxes and other 86,303 82,943 --------- -------- 665,070 615,412 Shareholders' equity 512,021 463,753 ----------- --------- $1,177,091 $1,079,165 =========== ==========
3 Teleflex Incorporated --------------------- Condensed Consolidated Statement of Income ------------------------------------------ (Dollars and Shares in Thousands, Except Per Share)
Three Months Ended Nine Months Ended ------------------------- ----------------------------- Sept. 27, Sept.28, Sept. 27, Sept. 28, 1998 1997 1998 1997 ---------- ---------- ------------- ----------- Revenues $342,962 $281,757 $1,051,733 $831,364 ---------- ---------- ------------- ----------- Cost of sales 246,795 197,065 752,364 577,146 Operating expenses 67,353 59,833 198,725 168,890 Interest expense 4,192 3,683 12,938 10,517 ---------- ---------- ------------- ----------- 318,340 260,581 964,027 756,553 ---------- ---------- ------------- ----------- Income before taxes 24,622 21,176 87,706 74,811 Provision for taxes on income 8,445 7,348 30,427 25,957 ---------- ---------- ------------- ----------- Net income $16,177 $13,828 $57,279 $48,854 ========== ========== ============= =========== Earnings per share Basic $0.43 $0.38 $1.53 $1.34 Diluted $0.42 $0.36 $1.49 $1.30 Dividends per share $0.115 $0.100 $0.330 $0.288 Average number of common and common equivalent shares outstanding Basic 37,391 36,784 37,320 36,581 Diluted 38,440 37,889 38,406 37,555
4 Teleflex Incorporated --------------------- Condensed Consolidated Statement of Cash Flows ---------------------------------------------- (Dollars in Thousands)
Nine Months Ended ------------------------------ Sept. 27, Sept. 28, 1998 1997 -------------- ------------- Cash flows from operating activities: Net income $57,279 $48,854 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 44,887 35,539 (Increase) in accounts receivable (25,937) (32,084) (Increase) in inventory (3,198) (11,020) Decrease in prepaid expenses 6,661 6,959 Increase (decrease) in accounts payable and accrued expenses 14,694 (8,308) Increase in estimated income taxes payable 8,146 5,456 ------------ --------- 102,532 45,396 ------------ --------- Cash flows from financing activities: Proceeds from new borrowings 11,713 9,000 Reduction in long-term borrowings (5,888) (11,905) (Decrease) increase in current borrowings and demand loans (26,032) 5,008 Proceeds from stock compensation plans 3,046 3,053 Dividends (12,307) (10,554) ------------ --------- (29,468) (5,398) ------------ --------- Cash flows from investing activities: Expenditures for plant assets (51,709) (52,344) Payments for businesses acquired (13,107) (14,273) Proceeds from sale of businesses and assets 35,868 Investments in affiliates (1,622) (7,712) Other 2,852 (1,350) ------------ --------- (27,718) (75,679) ------------ --------- Net increase (decrease) in cash and cash equivalents 45,346 (35,681) Cash and cash equivalents at the beginning of the period 30,702 68,618 ------------ --------- Cash and cash equivalents at the end of the period $76,048 $32,937 ============ =========
5 Teleflex Incorporated --------------------- Statement of Comprehensive Income ---------------------------------
Three Months Ended Nine Months Ended ------------------ ----------------- Sept.27, Sept.28, Sept.27, Sept.28, 1998 1997 1998 1997 ---- ---- ---- ---- Net income $16,177 $13,828 $57,279 $48,854 Cumulative translation adjustment (1,325) (2,376) (1,537) (4,551) -------- ------- -------- ------- Comprehensive income $14,852 $11,452 $55,742 $44,303 ======== ======= ======= =======
During the first quarter of 1998, the company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." As presented above, cumulative translation adjustment represents the only element of other comprehensive income. Notes to Condensed Consolidated Financial Statements ---------------------------------------------------- Note 1 The accompanying unaudited condensed consolidated financial statements for the three months and nine months ended September 27, 1998 and September 28, 1997 contain all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to present fairly the financial position, results of operations and cash flows for the periods then ended in accordance with the current requirements for Form 10-Q. Note 2 At September 27, 1998, 3,102,849 shares of common stock were reserved for issuance under the company's stock compensation plans. Note 3 Inventories consisted of the following:
Sept. 27, Dec. 28, 1998 1997 ---- ---- Raw materials $ 83,263 $ 72,806 Work-in-process 43,767 40,368 Finished goods 106,727 105,364 -------- -------- $233,757 $218,538 ======== ========
6 Note 4 Business segment information:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept.27, Sept.28, Sept.27, Sept.28, 1998 1997 1998 1997 ---- ---- ---- ---- Sales Commercial $146,904 $119,504 $480,295 $367,936 Medical 84,019 78,364 248,274 239,059 Aerospace 112,039 83,889 323,164 224,369 -------- -------- ---------- -------- Total $342,962 $281,757 $1,051,733 $831,364 ======== ======== ========== ======== Operating Profit Commercial $ 9,051 $11,311 $45,178 $45,428 Medical 9,977 8,159 29,759 24,848 Aerospace 14,058 9,234 38,628 25,732 ------- ------- --------- ------- Total $33,086 $28,704 $113,565 $96,008 ======= ======= ======== =======
Management's Analysis of Quarterly Financial Data ------------------------------------------------- RESULTS OF OPERATIONS: - ---------------------- Revenues increased 22% in the third quarter of 1998 to $343.0 million from $281.8 million in 1997. The increase resulted from gains in all three segments, Commercial, Medical and Aerospace. Approximately one-half of the growth was the result of acquisitions, primarily United Parts Group N.V. (United Parts), a European manufacturer of driver control systems purchased at the end of 1997. The other half of the increase in sales resulted from gains in the company's core product lines, principally in the Aerospace Segment. The Commercial, Medical and Aerospace segments comprised 43%, 24% and 33% of the company's net sales, respectively. Despite improvements within the Medical and Aerospace segments, gross profit margin decreased to 28.0% in 1998 compared with 30.0% in 1997. A reduction in the proportion of sales from the Medical Segment, which has a higher gross margin compared with the other segments; and, a lower contribution to gross margin from recent acquisitions resulted in the decrease. Operating expenses as a percentage of sales decreased to 19.6% in 1998 compared with 21.2% in 1997 resulting from the decline in the contribution of sales from the Medical Segment. 7 Operating profit increased 15% in the third quarter of 1998 from $28.7 million to $33.1 million. Operating margin declined from 10.2% in 1997 to 9.6% of sales in 1998. Both operating profit and operating margin increased in the Aerospace and Medical segments while in the Commercial Segment they decreased compared with the same period in 1997. Net income and diluted earnings per share for the quarter were $16.2 million and $.42 respectively which represents a 17% increase for both. Interest expense increased in 1998 as a result of additional borrowings incurred at the end of 1997 to finance the acquisition of United Parts. The effective income tax rate was 34.3% in 1998 compared with 34.7% in 1997. The decline resulted from an increase in the mix of the company's earnings within countries with relatively lower tax rates. INDUSTRY SEGMENT REVIEW: Sales in the Commercial Segment increased 23% from $119.5 million in 1997 to $146.9 million in 1998. The increase resulted from gains in the automotive and marine product lines while the industrial product line sales remained steady. The majority of the increase in sales in the Commercial Segment was the result of acquisitions in the prior year, primarily United Parts in December 1997. Operating profit declined in 1998 from $11.3 million to $9.1 million compared with 1997 and operating margin declined from 9.5% to 6.2%. The declines were due primarily to a decrease in the automotive product line as a result of lower margins from recently acquired businesses, new product start up costs and costs related to the General Motors strike. The General Motors strike, which ended in July, reduced operating profits in the quarter by $2.0 million, or 3 cents per share. The Medical Segment sales increased 7% from $78.4 million in 1997 to $84.0 million in 1998 as both the surgical devices product line and the hospital supply product line showed improvements. Operating profit increased 22% from $8.2 million to $10.0 million and operating margin improved from 10.4% to 11.9%. The improvement in operating profit and margin is the result of gains made in the surgical devices product line. The prior-year results were affected by expenses associated with the realignment of surgical devices sales and manufacturing and by the integration of an acquisition. The Aerospace Segment sales increased 34% from $83.9 million in 1997 to $112.0 million in 1998. Sales increased in all product lines in this Segment: cargo systems, coatings, repair services and turbine component manufacturing. The majority of the growth came from turbine component manufacturing which, 8 along with other product lines in this Segment, has been affected by the favorable conditions in the commercial aviation market. Operating profit increased 52% due to the sales increase and operating margin improved from 11.0% to 12.5%. Cash flow from operations increased $57.1 million during the period ended September 27, 1998 compared with 1997 due to higher net income, depreciation and working capital improvements. During the first quarter of 1998 certain non-strategic assets of United Parts, acquired in December 1997, were sold for $35.9 million in cash which proceeds were used to repay related current borrowings. Long-term borrowings increased by $18.7 million from $237.6 million at December 28, 1997, to $256.3 million at September 27, 1998. The increase was the result of additional long-term borrowings incurred to finance the construction of a facility in Singapore and the effects of higher foreign currency translation rates offset by repayments. The increase in shareholders' equity, primarily due to higher net income, resulted in an improvement in the ratio of long-term borrowings to total capitalization from 34% at December 28, 1997 to 33% at September 27, 1998. YEAR 2000: Background The "Year 2000 Issue" refers to computer programs written using two digits rather than four to define the year. This could result in computer systems being unable to distinguish between the year 1900 and the year 2000. The remediation of non-compliant computer systems before the year 2000 by the company, and its suppliers and customers is necessary to minimize the possibility of systems failures causing disruptions in business operations. Project The company began its year 2000 remediation project in 1997 which consists of 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, 9 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 September 27, 1998 more than one-half of the activities, including replacements, upgrades and modifications in the normal course of business, necessary for company-wide compliance have been completed. The project also encompasses remediation of non-information systems such as embedded chips within the company's production processes and infrastructure; and, customer and supplier readiness. As part of its overall business risk assessment, the company has sent year 2000 readiness surveys to its significant customers and suppliers. The surveys are being continuously updated and, where necessary, will be supplemented with on-site inspection of large critical 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 $5 million has been spent as of September 27, 1998 and has been funded by cash flow 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 normally scheduled business system implementations will reduce the risk of significant disruption of normal business operations. The company's operations are diversified among over eighty separate business units. This diversified environment combined with multiple customer and supplier relationships further reduces the risk of a significant disruption to the company's consolidated operations. FORWARD-LOOKING STATEMENTS: The analysis 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. 10 Teleflex Incorporated --------------------- Part II Other Information ------------------------- Item 5. Other Information - -------------------------- In connection with any proposal submitted by stockholders for consideration at the 1999 Annual Meeting of Stockholders, but not proposed for inclusion in the Company's proxy statement and proxy for the 1999 Annual Meeting of Stockholders, the Company may exercise discretionary voting authority with respect to proxies solicited for that meeting if appropriate notice of the stockholder's proposal is not received by the Company at its principal executive offices by February 8, 1999. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (A) Reports on form 8-K. No reports on form 8-K were filed during the quarter. 11 Teleflex Incorporated --------------------- Signatures ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELEFLEX INCORPORATED /s/ Harold L. Zuber, Jr. ------------------------ Harold L. Zuber, Jr. Vice President and Chief Financial Officer /s/ Stephen J. Gambone --------------------------- Stephen J. Gambone Controller and Chief Accounting Officer November 9, 1998 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-27-1998 DEC-29-1997 SEP-27-1998 76,048 0 303,096 0 233,757 628,968 401,985 0 1,177,091 322,484 256,283 0 0 37,413 474,608 1,177,091 342,962 342,962 246,795 246,795 67,353 0 4,192 24,622 8,445 16,177 0 0 0 16,177 .43 .42
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