EX-13 2 w45905ex13.txt TELEFLEX ANNUAL REPORT 1 TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
Year ended ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, December 26, December 27, 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share) REVENUES $1,764,482 $1,601,069 $1,437,578 ---------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Materials, labor and other product costs 1,274,203 1,155,879 1,029,658 Selling, engineering and administrative expenses 311,278 284,702 266,106 Interest expense, net 20,787 17,732 17,054 ---------------------------------------------------------------------------------------------------------------------- 1,606,268 1,458,313 1,312,818 ---------------------------------------------------------------------------------------------------------------------- Income before taxes 158,214 142,756 124,760 Taxes on income 48,990 47,536 42,210 ---------------------------------------------------------------------------------------------------------------------- NET INCOME $ 109,224 $ 95,220 $ 82,550 ---------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE Basic $2.86 $2.52 $2.21 Diluted $2.83 $2.47 $2.15 ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 25 2 TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
Year ended -------------------------------------------------------------------------------------------------------------------- DECEMBER 31, December 26, 2000 1999 -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS Current assets Cash and cash equivalents $ 45,139 $ 29,040 Accounts receivable, less allowance for doubtful accounts, 2000 - $5,776; 1999 - $4,825 334,346 324,629 Inventories 259,845 227,486 Prepaid expenses 22,708 23,785 -------------------------------------------------------------------------------------------------------------------- Total current assets 662,038 604,940 -------------------------------------------------------------------------------------------------------------------- Plant assets Land and buildings 171,776 162,425 Machinery and equipment 659,288 604,048 -------------------------------------------------------------------------------------------------------------------- 831,064 766,473 Less accumulated depreciation 341,561 300,572 -------------------------------------------------------------------------------------------------------------------- Net plant assets 489,503 465,901 Investments in affiliates 39,515 55,749 Intangibles and other assets 210,232 136,854 -------------------------------------------------------------------------------------------------------------------- $1,401,288 $1,263,444 -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Demand loans $ 97,040 $ 61,300 Current portion of long-term borrowings 20,997 37,200 Accounts payable 119,221 99,968 Accrued expenses 116,483 104,614 Income taxes payable 30,131 26,330 -------------------------------------------------------------------------------------------------------------------- Total current liabilities 383,872 329,412 Long-term borrowings 220,557 246,191 Deferred income taxes and other 106,437 85,277 -------------------------------------------------------------------------------------------------------------------- Total liabilities 710,866 660,880 -------------------------------------------------------------------------------------------------------------------- Shareholders' equity Common shares, $1 par value Issued: 2000 - 38,344,427 shares; 1999 - 38,018,735 shares 38,344 38,019 Additional paid-in capital 79,546 73,786 Retained earnings 602,544 515,483 Accumulated other comprehensive income (30,012) (24,724) -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 690,422 602,564 -------------------------------------------------------------------------------------------------------------------- $1,401,288 $1,263,444 --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 26 3 TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended -------------------------------------------------------------------------------------------------------------------- DECEMBER 31, December 26, December 27, 2000 1999 1998 -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $109,224 $95,220 $82,550 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 77,417 67,389 60,105 Deferred income taxes 8,972 4,710 2,702 (Increase) in accounts receivable (6,620) (32,325) (24,745) (Increase) decrease in inventories (18,150) 5,472 (8,626) Decrease (increase) in prepaid expenses 1,030 (4,710) 2,676 Increase (decrease) in accounts payable and accrued expenses 15,297 (4,870) 12,777 Increase in income taxes payable 2,245 3,182 4,188 -------------------------------------------------------------------------------------------------------------------- 189,415 134,068 131,627 -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from new borrowings 46,390 50,866 42,868 Reduction in long-term borrowings (64,706) (46,941) (19,670) Increase (decrease) in current borrowings and demand loans 13,902 1,812 (39,029) Proceeds from stock compensation plans 5,258 5,890 5,918 Dividends (22,163) (19,126) (16,628) -------------------------------------------------------------------------------------------------------------------- (21,319) (7,499) (26,541) -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for plant assets (80,652) (96,516) (69,063) Payments for businesses acquired (87,846) (43,895) (22,026) Proceeds from disposition of product lines and assets 17,812 -- 35,868 Investments in affiliates (4,423) (22,377) (15,691) Other 3,112 (1,430) 1,813 -------------------------------------------------------------------------------------------------------------------- (151,997) (164,218) (69,099) -------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,099 (37,649) 35,987 Cash and cash equivalents at the beginning of the year 29,040 66,689 30,702 -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the year $ 45,139 $29,040 $66,689 --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 27 4 TELEFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended -------------------------------------------------------------------------------------------------------------------- DECEMBER 31, December 26, December 27, 2000 1999 1998 -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share) COMMON SHARES Balance, beginning of year $ 38,019 $ 37,615 $ 37,118 Shares issued under compensation plans 325 404 497 -------------------------------------------------------------------------------------------------------------------- Balance, end of year 38,344 38,019 37,615 -------------------------------------------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL Balance, beginning of year 73,786 72,080 63,158 Shares issued under compensation plans 5,760 1,706 8,922 -------------------------------------------------------------------------------------------------------------------- Balance, end of year 79,546 73,786 72,080 -------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, beginning of year 515,483 439,389 373,467 Net income 109,224 95,220 82,550 Cash dividends (22,163) (19,126) (16,628) -------------------------------------------------------------------------------------------------------------------- Balance, end of year 602,544 515,483 439,389 -------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Cumulative translation adjustment (30,012) (20,875) (14,634) Unrealized loss on securities -- (3,849) -- -------------------------------------------------------------------------------------------------------------------- Balance, end of year (30,012) (24,724) (14,634) -------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 690,422 $602,564 $534,450 -------------------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER SHARE $.58 $.51 $.45 -------------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME Net income $109,224 $ 95,220 $ 82,550 Cumulative translation adjustment (9,137) (6,241) (4,644) Unrealized holding gain (loss) on securities 5,520 (3,849) -- Reclassification for gain included in net income (1,671) -- -- -------------------------------------------------------------------------------------------------------------------- Total comprehensive income $103,936 $ 85,130 $ 77,906 --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 28 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 consist of the following:
2000 1999 -------------------------------------------------------------------------------- Raw materials $108,808 $ 84,490 Work-in-process 36,065 38,690 Finished goods 114,972 104,306 -------------------------------------------------------------------------------- $259,845 $227,486 --------------------------------------------------------------------------------
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. The company periodically reviews the carrying value of intangible assets primarily based on an analysis of cash flows. Assets and liabilities of non-domestic 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. Investments in companies in which ownership interests range from 20% to 50% and the company exercises significant influence over operating and financial policies are accounted for using the equity method. Unrealized gains and losses on certain securities are accumulated in other comprehensive income, a separate component of shareholders' equity. ACQUISITIONS During 2000 and 1999 the company acquired various smaller businesses across several markets for $87,846 and $43,895 in cash, respectively. For 2000 and 1999 liabilities of $39,237 and $9,924 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. BORROWINGS AND LEASES
2000 1999 -------------------------------------------------------------------------------- Senior Notes at an average fixed rate of 7.2%, due in installments through 2008 $ 83,500 $ 61,000 Term loan notes, primarily Euro, at an average fixed rate of 5.7%, with an average maturity of three years 120,602 127,359 Other debt, mortgage notes and capital lease obligations, at interest rates ranging from 3% to 9% 37,452 95,032 -------------------------------------------------------------------------------- 241,554 283,391 Current portion of borrowings (20,997) (37,200) -------------------------------------------------------------------------------- $220,557 $246,191 --------------------------------------------------------------------------------
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, $174,000 of retained earnings was available for dividends at December 31, 2000. The weighted average interest rate on the $97,040 of demand loans was 6.0% at December 31, 2000. In addition, the company has approximately $250,000 available under several interest rate alternatives in unused lines of credit. Interest expense in 2000, 1999 and 1998 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 2001 are as follows: 2002 - $57,036; 2003 - $22,809; 2004 - $43,361; 2005 - $48,354. The company has entered into certain operating leases which require minimum annual payments as follows: 2001 - $27,659; 2002 - $23,321; 2003 - $19,446; 2004 - $17,193; 2005 - $13,903. The total rental expense for all operating leases was $29,640, $25,608 and $22,467 in 2000, 1999 and 1998, respectively. 29 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued (Dollars in thousands, except per share) SHAREHOLDERS' EQUITY AND STOCK COMPENSATION PLANS The authorized capital of the company is comprised of 100,000,000 common shares, $1 par value, and 500,000 preference shares. No preference shares were outstanding during the last three years. 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. Diluted earnings per share would have been reduced $.04 or less in 2000, 1999 and 1998 had compensation expense for stock options been determined based on the fair value at the grant date. The fair value of options granted during 2000, 1999 and 1998 of $10.56, $16.50 and $13.64, respectively, was estimated using the Black-Scholes option-pricing model. Officers and key employees held options for the purchase of 1,976,914 shares of common stock at prices ranging from $14.13 to $45.50 per share with an average exercise price of $29.13 per share and an average remaining contractual life of 7 years. Such options are presently exercisable with respect to 1,035,864 shares at an average exercise price of $25.13. Options to purchase 464,550, 447,750 and 47,000 shares of common stock were granted at average exercise prices of $29.20, $40.97 and $40.59, in 2000, 1999 and 1998, respectively. Options exercised were 282,576, 517,690 and 390,195 at average exercise prices of $16.27, $13.96 and $14.84 in 2000, 1999 and 1998, respectively. 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. INCOME TAXES The provision for income taxes consisted of the following:
2000 1999 1998 -------------------------------------------------------------------------------- Current Federal $27,842 $33,978 $32,278 State 3,269 3,335 3,239 Foreign 8,907 5,513 3,991 Deferred 8,972 4,710 2,702 -------------------------------------------------------------------------------- $48,990 $47,536 $42,210 --------------------------------------------------------------------------------
The deferred income taxes provided and the balance sheet amounts of $50,722 in 2000 and $41,333 in 1999 related substantially to the methods of accounting for depreciation. Income taxes paid were $36,961, $39,923 and $31,028 in 2000, 1999 and 1998, respectively.
2000 1999 1998 -------------------------------------------------------------------------------- Tax at U.S. statutory rate 35.0% 35.0% 35.0% State income taxes 1.3 1.6 1.7 Foreign income taxes (3.9) (1.8) (1.3) Export sales benefit (1.5) (1.5) (1.5) Other .1 -- (.1) -------------------------------------------------------------------------------- Effective income tax rate 31.0% 33.3% 33.8% --------------------------------------------------------------------------------
BUSINESS SEGMENTS AND OTHER INFORMATION The company has determined that its reportable segments are Commercial, Medical and Aerospace. This assessment reflects the aggregation of businesses which have similar products and services, manufacturing processes, customers and distribution channels, and is consistent with both internal management reporting and resource and budgetary allocations. Reference is made to pages 32 and 33 for a summary of operations by business segment. A summary of revenues, identifiable assets and operating profit relating to the company's non-domestic operations, substantially European, and export sales is as follows:
2000 1999 1998 -------------------------------------------------------------------------------- Revenues $675,787 $642,827 $571,587 Identifiable assets $580,756 $539,282 $551,440 Operating profit $ 60,132 $ 50,552 $ 38,537 Export sales $196,500 $181,500 $151,100 --------------------------------------------------------------------------------
PENSION AND OTHER POSTRETIREMENT BENEFITS The company provides defined benefit pension and postretirement benefit plans to eligible employees. Assumptions used in determining pension expense and benefit obligations reflect a weighted average discount rate of 7.5% in 2000 and 1999, an investment rate of 9% and a salary increase of 5%. Assumptions used in determining other postretirement expense and benefit obligations include a weighted average discount rate of 7.6% in 2000 and 7.3% in 1999 and a health care cost trend rate of 5.5%. Increasing the trend rate by 1% would increase the benefit obligation by $1,452 and would increase the 2000 benefit expense by $159. Decreasing the trend rate by 1% would decrease the benefit obligation by $1,244 and would decrease the 2000 benefit expense by $123. 30 7 The following tables provide net benefit cost, a reconciliation of benefit obligations, plan assets and funded status of the plans:
Pension Other Benefits -------------------------------------------------------------------------------- 2000 1999 2000 1999 -------------------------------------------------------------------------------- Service cost $ 4,237 $ 3,603 $ 331 $ 227 Interest cost 6,639 5,761 1,030 886 Actual return (9,649) (631) -- -- Net amortization and deferral 2,103 (7,420) 348 145 Foreign plans 1,269 1,169 -- -- -------------------------------------------------------------------------------- Net benefit cost $ 4,599 $ 2,482 $ 1,709 $ 1,258 -------------------------------------------------------------------------------- Benefit obligations, beginning of year $ 90,089 $ 90,070 $ 14,911 $ 13,537 Service cost 4,237 3,603 331 227 Interest cost 6,639 5,761 1,030 886 Amendments 107 1,675 225 (252) Actuarial loss (gain) 975 (2,521) 910 1,326 Acquisitions 1,012 (3,184) -- -- Currency translation (1,034) (2,074) -- -- Benefits paid (4,789) (4,410) (989) (813) Foreign plans 1,269 1,169 -- -- -------------------------------------------------------------------------------- Benefit obligations, end of year 98,505 90,089 16,418 14,911 -------------------------------------------------------------------------------- Fair value of plan assets, beginning of year 76,226 77,503 -- -- Actual return 9,649 631 -- -- Acquisitions 446 -- -- -- Contributions 2,525 1,611 -- -- Benefits paid (4,152) (3,519) -- -- -------------------------------------------------------------------------------- Fair value of plan assets, end of year 84,694 76,226 -- -- -------------------------------------------------------------------------------- Funded status (13,811) (13,863) (16,418) (14,911) Unrecognized transition (asset) obligation (834) (1,032) 5,022 5,441 Unrecognized net actuarial gain (10,444) (10,205) (370) (1,353) Unrecognized prior service cost 4,129 3,189 638 414 -------------------------------------------------------------------------------- Accrued benefit cost $(20,960) $(21,911) $(11,128) $(10,409) --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS [PRICEWATERHOUSE COOPERS LOGO] To the Board of Directors and Shareholders Teleflex Incorporated In our opinion, the consolidated financial statements appearing on pages 25 through 31 of this Annual Report present fairly, in all material respects, the financial position of Teleflex Incorporated and its subsidiaries at December 31, 2000 and December 26, 1999 and the results of their operations and cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles in the United States. 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 auditing standards generally accepted in the United States, 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 our opinion. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 14, 2001
QUARTERLY DATA (unaudited) -------------------------------------------------------------------------------- 2000 FIRST SECOND THIRD FOURTH -------------------------------------------------------------------------------- Revenues $427,590 $465,553 $420,405 $450,934 Gross profit 121,412 133,713 114,336 120,818 Net income 26,814 29,324 21,722 31,364 Basic earnings per share .70 .77 .57 .82 Diluted earnings per share .70 .76 .56 .81
-------------------------------------------------------------------------------- 1999 First Second Third Fourth -------------------------------------------------------------------------------- Revenues $392,190 $421,126 $377,391 $410,362 Gross profit 110,951 121,401 104,637 108,201 Net income 23,054 25,854 18,986 27,326 Basic earnings per share .61 .69 .50 .72 Diluted earnings per share .60 .67 .49 .71 --------------------------------------------------------------------------------
31 8 TELEFLEX INCORPORATED AND SUBSIDIARIES SELECTED FINANCIAL AND BUSINESS SEGMENT DATA
2000 1999 1998 --------------------------------------------------------------------------------------------------- Revenues Commercial $ 860,201 $ 757,720 $ 649,644 Medical 411,815 372,282 338,305 Aerospace 492,466 471,067 449,629 Other income(a) -- -- -- --------------------------------------------------------------------------------------------------- $1,764,482 $1,601,069 $1,437,578 --------------------------------------------------------------------------------------------------- Operating profit Commercial $ 86,911 $ 75,823 $ 62,010 Medical 56,483 49,551 41,879 Aerospace 53,115 52,940 55,163 --------------------------------------------------------------------------------------------------- 196,509 178,314 159,052 Interest expense, net 20,787 17,732 17,054 Corporate expenses, net of other income 17,508 17,826 17,238 --------------------------------------------------------------------------------------------------- Income before taxes 158,214 142,756 124,760 Taxes on income 48,990 47,536 42,210 --------------------------------------------------------------------------------------------------- Net income $ 109,224 $ 95,220 $ 82,550 --------------------------------------------------------------------------------------------------- Basic earnings per share $ 2.86 $ 2.52 $ 2.21 Diluted earnings per share $ 2.83 $ 2.47 $ 2.15 Cash dividends per share $ .58 $ .51 $ .45 Average common shares outstanding 38,203 37,857 37,347 Average shares, assuming dilution 38,633 38,525 38,425 Net income as a percent of revenues 6.2% 5.9% 5.7% Average number of employees 15,986 13,980 12,603 Identifiable assets Commercial $ 513,217 $ 451,389 $ 405,347 Medical $ 424,183 $ 388,430 $ 361,282 Aerospace $ 360,123 $ 332,109 $ 324,532 Capital expenditures Commercial $ 35,528 $ 43,623 $ 26,243 Medical $ 19,592 $ 17,751 $ 13,943 Aerospace $ 24,815 $ 33,523 $ 28,561 Depreciation and amortization Commercial $ 28,359 $ 24,875 $ 23,353 Medical $ 24,748 $ 20,574 $ 18,044 Aerospace $ 23,435 $ 21,132 $ 17,852 Long-term borrowings $ 220,557 $ 246,191 $ 275,581 Shareholders' equity $ 690,422 $ 602,564 $ 534,450 Book value per share $18.01 $15.85 $14.21 Return on average shareholders' equity 6.9% 16.7% 16.5% ---------------------------------------------------------------------------------------------------
32 9
1997 1996 1995 1994 1993 1992 1991 1990 ----------------------------------------------------------------------------------------------------------------- (Dollars and shares in thousands, except per share and employee data) $ 497,366 $422,443 $403,637 $356,708 $284,106 $210,464 $168,598 $162,646 323,114 307,555 293,341 253,020 180,623 179,376 130,540 115,756 325,293 201,185 215,711 202,944 202,067 177,292 180,399 162,731 -- -- -- -- -- 3,206 3,472 3,080 ----------------------------------------------------------------------------------------------------------------- $1,145,773 $931,183 $912,689 $812,672 $666,796 $570,338 $483,009 $444,213 ----------------------------------------------------------------------------------------------------------------- $ 61,562 $ 57,849 $ 59,719 $ 53,324 $ 37,794 $ 25,754 $ 19,996 $ 22,224 35,466 34,630 30,237 32,386 21,486 25,463 19,900 16,183 38,787 21,007 12,683 5,367 14,906 16,100 21,722 20,781 ----------------------------------------------------------------------------------------------------------------- 135,815 113,486 102,639 91,077 74,186 67,317 61,618 59,188 14,435 13,876 18,632 18,361 14,466 15,482 13,765 12,401 14,975 12,831 10,407 9,725 7,410 3,185 2,519 3,880 ----------------------------------------------------------------------------------------------------------------- 106,405 86,779 73,600 62,991 52,310 48,650 45,334 42,907 36,333 29,617 24,730 21,795 18,624 16,638 15,527 14,340 ----------------------------------------------------------------------------------------------------------------- $ 70,072 $ 57,162 $ 48,870 $ 41,196 $ 33,686 $ 32,012(b) $ 29,807 $ 28,567 ----------------------------------------------------------------------------------------------------------------- $1.91 $1.61 $1.40 $1.20 $.99 $.95(b) $.90 $.87 $1.86 $1.58 $1.37 $1.17 $.98 $.93(b) $.88 $.87 $.39 $.34 $.30 $.26 $.23 $.21 $.20 $.18 36,759 35,482 34,885 34,373 33,958 33,557 33,062 32,667 37,661 36,197 35,574 35,061 34,533 34,264 33,701 32,952 6.1% 6.1% 5.4% 5.1% 5.1% 5.6% 6.2% 6.4% 10,830 9,373 9,553 8,740 7,920 6,920 6,160 5,860 $ 351,345 $227,594 $201,808 $184,971 $158,206 $142,041 $101,187 $ 84,678 $ 333,698 $320,699 $331,349 $311,547 $266,239 $206,562 $194,609 $147,954 $ 276,708 $194,305 $183,636 $188,348 $202,130 $142,523 $141,104 $143,419 $ 22,570 $ 12,821 $ 15,445 $ 13,489 $ 7,967 $ 7,386 $ 7,505 $ 5,581 $ 10,611 $ 10,421 $ 12,107 $ 7,029 $ 7,361 $ 5,316 $ 7,138 $ 4,236 $ 40,992 $ 16,767 $ 2,794 $ 4,538 $ 8,865 $ 6,384 $ 5,585 $ 7,166 $ 14,335 $ 11,907 $ 11,446 $ 9,930 $ 9,251 $ 6,262 $ 5,633 $ 5,369 $ 18,459 $ 16,267 $ 15,087 $ 11,694 $ 8,030 $ 6,505 $ 4,725 $ 3,999 $ 14,440 $ 9,827 $ 10,471 $ 10,771 $ 10,176 $ 8,002 $ 7,366 $ 7,024 $ 237,562 $195,945 $196,844 $190,499 $183,504 $134,600 $119,370 $112,941 $ 463,753 $409,176 $355,364 $309,024 $269,790 $240,467 $211,702 $187,875 $12.49 $11.30 $10.13 $8.94 $7.90 $7.12 $6.37 $5.72 16.1% 15.0% 14.7% 14.2% 13.2% 14.2% 14.9% 16.4% -----------------------------------------------------------------------------------------------------------------
(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. 33 10 TELEFLEX INCORPORATED AND SUBSIDIARIES 2000 FINANCIAL REVIEW REVENUES (in millions) [REVENUES BAR CHART] OVERVIEW The company's major financial objectives are to achieve a 15% to 20% annual growth rate in revenues and net income, to generate a 20% return on average shareholders' equity and to pay dividends of 20% of trailing twelve months' earnings. Over the last five years the company has met its target for net income as it has grown by a compounded rate of 17% while revenues have grown by 14% over that same time period. The year 2000 was the seventh consecutive year of 15% or higher growth in net income. Return on average shareholders' equity was 16.9% for 2000 and has improved in each of the last seven years. Finally, the company has paid dividends of 20% or more of trailing twelve months' earnings since the first cash dividend payment was made in 1977. 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 of changes in the business cycle of any one segment, thus enabling the company to consistently achieve its growth objectives. Diversification gives the company the opportunity to invest in all stages of a segment's market cycle and provides a broader base of markets in which to grow. The company also diversifies within each Segment by entering into new geographic areas and different sectors within a market and, by extending products to additional markets. As a result, despite cyclical downturns within each of the segments, the company's total operating profit has continued to increase. The company intends to achieve its growth objectives through a combination of core growth, development of new products and new markets for existing products and, acquisitions. Over the past five years the company's core growth has accounted for approximately one-half of its overall growth. During the same time the company has invested cash of nearly $300 million for acquisitions to supplement core growth. During 1999 and 2000, the company purchased twenty businesses with annualized sales of approximately $200 million, $115 million of which is included in 2000 revenues. These acquisitions fit strategically within the company's businesses and bring new technologies, capabilities and market opportunities that will supplement future growth. In February 2001, the company acquired for $135 million in cash, Morse Controls, a supplier of industrial and marine products with annual sales of approximately $150 million. Acquisitions, while adding initially to revenues, may 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 that require incremental investment to enhance their growth prospects. The company has maintained a conservative capital structure with long-term debt ranging from 24% 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 non-domestic operations primarily in their local currencies, thus reducing exposure to exchange rate fluctuations. Historically, operations have generated sufficient cash flow to finance the company's core growth while borrowings have been incurred largely to finance acquisitions. Over the past five years cash flow from operations has totaled over $600 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, while not particularly capital intensive, has spent approximately 5% of sales annually on plant and equipment. 34 11 RESULTS OF OPERATIONS 2000 VS. 1999 Revenues increased 10% in 2000 to $1.76 billion from $1.60 billion in 1999 resulting from gains in each of the company's three segments. Acquisitions accounted for half of the company's increase in revenue. Non-domestic operations comprised 38% of the company's revenues and increased 5% over 1999. The company's overall revenues were reduced as a result of weaker foreign currencies, mainly in the Medical Segment. The Commercial, Medical and Aerospace segments accounted for 49%, 23% and 28% of the company's revenues, respectively. Gross profit margin remained at 27.8% in 2000 resulting from increases in the Commercial and Aerospace segments which offset a decline in the Medical Segment. Selling, administrative and engineering expenses as a percentage of sales declined slightly in 2000 to 17.6% resulting from a reduction in the Medical Segment which offset increases in the Commercial and Aerospace segments. Operating profit increased 10% to $196.5 million from $178.3 million as all three segments gained. Operating margin remained at 11.1% resulting from a higher Medical Segment offsetting a lower Aerospace Segment while the Commercial Segment remained flat. The Commercial, Medical and Aerospace segments represented 44%, 29% and 27% of the company's operating profit, respectively. Interest expense increased from higher interest rates and lower invested cash balances, as total borrowings declined slightly. Interest expense as a percentage of sales increased to 1.2% in 2000 from 1.1% in 1999. The effective income tax rate declined to 31.0% in 2000 compared with 33.3% in 1999 due to a higher proportion of income earned in 2000 in countries with relatively lower tax rates. In addition, for 2000 the company's effective tax rate was lower from a decrease in deferred taxes resulting from a reduction in the German statutory tax rate enacted in the fourth quarter. Net income increased 15% in 2000 to $109.2 million from $95.2 million and diluted earnings per share also increased 15% to $2.83. Basic earnings per share increased 13% to $2.86. 1999 VS. 1998 Revenues increased 11% in 1999 to $1.60 billion from $1.44 billion in 1998. The increase was attributable to gains in each of the company's three segments. Acquisitions accounted for 40% of the increase in revenues. Non-domestic operations, which comprised 40% of the company's revenues, increased 12% over 1998 and were reduced slightly by currency exchange rates. For 1999 the Commercial, Medical and Aerospace segments comprised 47%, 23% and 30% of the company's net sales, respectively. Gross profit margin decreased in 1999 resulting from a decline in the Commercial and Aerospace segments, offset by an increase in the Medical Segment. Selling, engineering and administrative expenses as a percent of sales decreased in 1999 due to a reduction in the Commercial Segment, which was nearly offset by an increase in the Aerospace Segment. Operating profit increased 12% in 1999 to $178.3 million from $159.1 million in 1998. The increase was due to gains in the Commercial and Medical segments which offset a decline in the Aerospace Segment. Operating margin remained unchanged at 11.1% as an increase in the Medical and Commercial segments offset a decline in the Aerospace Segment. For 1999 the Commercial, Medical and Aerospace segments represented 42%, 28% and 30% of the company's operating profit, respectively. Interest expense increased as a result of higher interest rates and lower invested cash balances. Interest expense as a percentage of sales decreased to 1.1% in 1999 from 1.2% in 1998. The effective income tax rate declined to 33.3% in 1999 compared with 33.8% in 1998 because a higher proportion of income was earned in 1999 in countries with relatively lower tax rates. Net income in 1999 increased 15% to $95.2 million while diluted earnings per share increased 15% to $2.47. Basic earnings per share increased 14% to $2.52. NET INCOME (in millions) [NET INCOME BAR CHART] 35 12 2000 FINANCIAL REVIEW continued COMMERCIAL SEGMENT The Commercial Segment designs and manufactures proprietary mechanical and electrical controls for the automotive market; mechanical, electrical and hydraulic controls, and electronic products for the pleasure marine market; and proprietary products for fluid transfer and industrial applications. OPERATING PROFIT (in millions) [OPERATING PROFIT BAR CHART] 2000 VS. 1999 Sales in the Commercial Segment increased 14% in 2000 to $860.2 million from $757.7 million in 1999. All three product lines, Automotive, Marine and Industrial, reported sales gains with approximately one-half the growth coming from acquisitions. The increase in the Automotive product line was the result of a strong automotive market in North America and increased sales of new products including the adjustable pedal system. Within the Marine product line the increase was largely due to sales of new products. Sales in the Industrial product line benefited from acquisitions and new applications for light-duty cables. Operating profit rose 15% in 2000 to $86.9 million from $75.8 million while operating margin increased from 10.0% to 10.1%. Operating profit and margin increased in the Automotive product line from the additional volume despite product development expenses and plant start up for the adjustable pedal system. Within Industrial, operating profit increased on the additional volume but operating margin declined from lower margins of the acquired businesses and expenses associated with their integration. Marine operating profit and margin were lower from new product development expenses for integrated electronic engine systems and the adjustable pedal for the truck and bus market. Assets increased in 2000 due to acquisitions in the Industrial product line. Return on average assets increased to 18.0% in 2000 from 17.7% in 1999 as operating profit gains in the Automotive product line offset a lower return from acquisitions. 1999 VS. 1998 Sales in the Commercial Segment increased 17% in 1999 to $757.7 million from $649.6 million in 1998. All three product lines, Automotive, Marine and Industrial, reported sales gains as a result of new products. New products, such as the adjustable pedal system, along with the continued strength of the North American automotive market resulted in higher Automotive product line sales. Sales increased in the Marine product line due to a stronger marine market and new products including the modern burner unit sold to non-marine markets. Sales in the Industrial product line benefited from new products and increased volume of light-duty cable including an acquisition. Operating profit rose 22% in 1999 to $75.8 million from $62.0 million in 1998 and operating margin increased to 10.0% from 9.5%. Operating profit in all three product lines increased due to the additional volume. In the Automotive product line, increased volumes moved operating profits higher but operating margins were reduced by additional engineering, product launch and new plant start up expenses for the adjustable pedal system. The operating margin in the Industrial product line was lower than the prior year due to the expenses of integrating an acquisition. In the Marine product line the higher volumes had a favorable impact on operating margin. Total assets in this Segment grew by $46 million in 1999 as a result of spending on new manufacturing facilities and equipment for new products, and capacity expansion in the Automotive and Industrial product lines. Return on average assets increased in 1999 to 17.7% from 16.4% in 1998 due to improved operating profits in the Marine product line. 36 13 CAPITAL EXPENDITURES (in millions) [CAPITAL EXPENDITURES BAR CHART] 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 specialty surgical products, and provides instrument management services. 2000 vs. 1999 In 2000 Medical Segment sales increased by 11% to $411.8 million from $372.3 million in 1999 resulting from gains in both the Hospital Supply and Surgical Devices product lines. Excluding a decline in currency exchange rates, sales would have gained another 6%. The increase in the Hospital Supply product line resulted from core growth and the acquisition of a manufacturer of urological products and an Italian distributor. Within the Surgical Devices product line, growth from sales of new closure and instrument products resulted in the sales increase. Operating profit increased 14% in 2000 to $56.5 million and operating margin improved to 13.7% from 13.3%. The increases in operating profit and margin are the result of the volume gains in both Hospital Supply and Surgical Devices. Within Hospital Supply, the operating margin improvement resulted from the shift of production to low cost manufacturing facilities and increased sales of higher margin products. Assets increased due to the acquisitions and additional capital expenditures within Surgical Devices related to instrument management services. Return on average assets increased to 13.9% in 2000 from 13.2% in 1999 resulting from the gain in operating profit which more than offset the increase in assets. 1999 vs. 1998 In 1999 the Medical Segment sales increased by 10% to $372.3 million from $338.3 million in 1998 as a result of acquisitions in both product lines of this Segment, Hospital Supply and Surgical Devices. In the Hospital Supply product line a European distributor was acquired, while in Surgical Devices an instrument management services business and a North American distributor of specialty surgical instruments were added. Operating profit rose 18% in 1999 to $49.6 million from $41.9 million in 1998 and operating margin increased to 13.3% from 12.4% as a result of improvements in both product lines. The gains were due to increased volume and sales of higher margin products. Assets increased in 1999 as a result of the acquisitions, which offset the effects of currency translation. Return on average assets increased to 13.2% from 12.1% due to the increase in operating profit combined with a relatively smaller increase in the asset base. AEROSPACE SEGMENT The Aerospace Segment serves the commercial aerospace and industrial turbomachinery markets. Its businesses design and manufacture cargo systems and containers for aviation; provide surface treatments, repair services and manufactured components for users of both flight and ground-based turbine engines. Sales are both to original equipment manufacturers (OEMs) and the aftermarket. DIVIDENDS PER SHARE [DIVIDENDS PER SHARE BAR CHART] 37 14 2000 FINANCIAL REVIEW continued 2000 vs. 1999 Sales in the Aerospace Segment increased 5% in 2000 to $492.5 million from $471.1 million in 1999. Sales increases in cargo systems due to increased market share, in industrial gas turbine services due to a strong market and in repair services offset a decline in manufactured components. The acquisition of a manufacturer of containers for aircraft added to the growth in cargo systems and the purchase of an engineering services firm contributed to the increase in industrial gas turbine services. The decline in the build rate for aircraft resulted in reduced manufactured component sales. Operating profit increased slightly to $53.1 million in 2000 from $52.9 million in 1999 while operating margin declined to 10.8% in 2000 from 11.2% in 1999. Operating profit gains due to the sales increases in cargo systems, industrial gas turbine services and repair services offset a decline from manufactured components. Expenses associated with the combination of facilities in both cargo systems and industrial gas turbine services and the closing of two component manufacturing plants lowered operating margin in 2000. The increase in assets in 2000 was due to the acquisitions. Return on average assets declined to 15.3% from 16.1% due to lower component manufacturing operating profit and a reduced return from acquisitions. 1999 vs. 1998 Sales in the Aerospace Segment grew by 5% in 1999 to $471.1 million from $449.6 million in the prior year. Sales increased in repair services and industrial gas turbine services due to growth in the aftermarket sector of the aerospace market. This increase was partially offset by reduced volume in component manufacturing resulting from softening of the OEM sector of the market. Operating profit declined 4% in 1999 to $52.9 million from $55.2 million in 1998 and operating margin decreased to 11.2% from 12.3%. The lower operating profit resulted from the decline in sales primarily in component manufacturing and from additional expenses associated with cost reduction programs designed to improve profitability. A higher proportion of sales in repair services also reduced the Segment's operating margin since a portion of its profits are shared with a joint venture partner. Assets increased in 1999 by $8 million due primarily to the start up of an operation in Korea. Return on average assets declined to 16.1% in 1999 from 18.3% in 1998 due to the decrease in operating profit. CASH FLOW FROM OPERATIONS (in millions) [CASH FLOW FROM OPERATIONS BAR CHART] LIQUIDITY, MARKET RISK AND CAPITAL RESOURCES The company generated significant levels of cash from operations in 2000. Cash flows from operating activities grew to $189.4 million compared to $134.1 million in 1999 and $131.6 million in 1998. The increase in 2000 resulted from higher net income and non-cash depreciation and amortization and, from improvements in working capital. The 1999 results were from higher net income and depreciation and amortization offset by working capital requirements, primarily accounts receivable related to incremental sales volume. In addition to the cash generated from operations the company has approximately $250 million in committed and uncommitted unused lines of credit available which provide the ability to pursue strategic growth opportunities. These lines were drawn down by approximately $125 million for the February 2001 acquisition of Morse Controls. Total borrowings for the company decreased $6 million in 2000 and long-term debt to total capitalization improved to 24% from 29% in 1999 and 34% in 1998. The declines were the result of net repayments and currency exchange rate changes offset by additional borrowings to finance acquisitions. Approximately 65% of the company's total borrowings of $339 million are denominated in currencies other than the US dollar, principally Euro, providing a natural hedge against fluctuations in the value of non-domestic assets. In addition to the natural hedge positions for translation risk, the company occasionally uses forward rate contracts to manage currency transaction exposure and interest rate caps 38 15 and swaps for exposure to interest rate changes. The company does not enter into these arrangements for trading purposes, but rather to limit the impact of movements in financial markets on its cash flows. The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) which will be effective for the company in the first quarter of 2001. Under the provisions of this statement all derivative financial instruments will be recorded on the balance sheet at fair market value. Subsequent changes in value will be recognized in the statement of income or as part of comprehensive income. The company's use of derivative instruments is not significant at December 31, 2000 and the effect of adoption of SFAS 133 effective January 1, 2001 will not be material to financial position or results of operations. In summary, 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. 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 (in millions) [CAPITALIZATION BAR CHART] 39 16 TELEFLEX INCORPORATED AND SUBSIDIARIES INVESTOR INFORMATION ANNUAL MEETING The Annual Meeting of shareholders will take place on April 27, 2001 at the: JEFFERSON HOUSE RESTAURANT (IN THE BALLROOM) 2519 DEKALB PIKE (RTE. 202) NORRISTOWN, PENNSYLVANIA The meeting will convene at 10:00 a.m. All shareholders are cordially invited to attend. [TELEFLEX LOGO] MARKET AND OWNERSHIP OF COMMON STOCK New York Stock Exchange Trading Symbol: TFX As of December 31, 2000, the company's fiscal year, the approximate number of shareholders of record was 1,251. INVESTOR RELATIONS Security analysts and portfolio managers seeking information about the company should contact: Janine Dusossoit Vice President, Investor Relations (610) 834-6301 Investors may also obtain financial and product information about Teleflex on the company's Web site at WWW.TELEFLEX.COM. A copy of the Annual Report as filed with the Securities and Exchange Commission on Form 10-K and interim reports Form 10-Q can be accessed on the company's Web site, or can be mailed upon request to: Communications Department Teleflex Incorporated 155 South Limerick Road Limerick, Pennsylvania 19468 (610) 948-2811 E-Mail: pcarr@teleflex.com TRANSFER AGENT AND REGISTRAR Questions concerning transfer requirements, lost certificates, dividends, duplicate mailings, change of address, or other stockholder matters should be addressed to the Transfer Agent: American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 (800) 937-5449 DIVIDENDS Quarterly dividends customarily are mailed to reach shareholders on or about the 15th of March, June, September and December. Shareholders may have dividends deposited into their savings or checking account at the financial institution of their choice. To participate in this service and to obtain a "Direct Deposit Authorization Agreement" contact American Stock Transfer & Trust Company. PRICE RANGE AND DIVIDENDS OF COMMON STOCK
2000 High Low Last Dividends -------------------------------------------------------------------------------- First Quarter $36 1/8 $26 1/8 $35 1/2 $.13 Second Quarter $38 15/16 $32 15/16 $35 3/4 $.15 Third Quarter $39 1/2 $32 7/8 $34 3/8 $.15 Fourth Quarter $45 3/8 $31 13/16 $44 3/16 $.15
1999 High Low Last Dividends -------------------------------------------------------------------------------- First Quarter $45 1/8 $33 5/8 $34 1/16 $.115 Second Quarter $46 3/8 $33 7/16 $43 7/16 $.13 Third Quarter $50 7/16 $38 5/16 $39 7/16 $.13 Fourth Quarter $40 3/16 $28 7/8 $31 5/16 $.13
DIVIDEND REINVESTMENT PLAN Teleflex Incorporated offers an automatic dividend reinvestment plan which enables holders of Teleflex common stock to reinvest their dividends and purchase additional shares free of service fees or brokerage commissions. Contact the company's transfer agent, American Stock Transfer & Trust Company, for further information. INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP Philadelphia, Pennsylvania FORWARD-LOOKING STATEMENTS In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company notes that certain statements contained in this report are forward-looking in nature. These forward-looking statements include matters such as business strategies, market potential, future financial performance, product deployments and other future-oriented matters. Such matters inherently involve many risks and uncertainties (including risks and uncertainties associated with changes in competitive and market conditions, changes in regulation and technology, policies of suppliers and customer acceptance of new products), which can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to the Company's Securities and Exchange Commission filings including its most recent Form 10-K. 40