-----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, UtTJA9TeLJjgx1U9tfsrJn2C3hoIW86U/B4fUqmC1vEye0wBSPEf9+iEifV48Lm2 dLcq6zKYZ5K0pBe2BCV/AA== 0000893220-00-000311.txt : 20000324 0000893220-00-000311.hdr.sgml : 20000324 ACCESSION NUMBER: 0000893220-00-000311 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991226 FILED AS OF DATE: 20000323 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: 1227 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05353 FILM NUMBER: 576112 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-K 1 FORM 10-K, TELEFLEX INCORPORATED 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 26, 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 NO. 1-5353 ------------------------ TELEFLEX INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 23-1147939 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 630 WEST GERMANTOWN PIKE, SUITE 450, PLYMOUTH 19462 MEETING, PENNSYLVANIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (610) 834-6301 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1 per share -- New York Stock Exchange Preference Stock Purchase Rights -- New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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 __ The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,047,538,755 as of February 1, 2000. The registrant had 38,054,220 Common Shares outstanding as of February 1, 2000. Documents Incorporated by Reference: (a) Annual Report to Shareholders for the fiscal year ended December 26, 1999, incorporated partially in Part I and Part II hereof; and (b) Proxy Statement for the 2000 Annual Meeting of Shareholders, incorporated partially in Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS Teleflex Incorporated ("the Company") was incorporated in 1943 as a manufacturer of precision mechanical push/pull controls for military aircraft. From this original single market, single product orientation, the Company began to emphasize products and services in a broader range of economically diverse markets to reduce its vulnerability to economic cycles. Since the mid-1970s, the Company's investments have been directed toward specific market niches employing its technical capabilities to provide solutions to specific engineering problems and, over the last ten years toward expanding into medical businesses. The continuing stream of new products and value-added product improvements that have resulted from this strategy have enabled the Company to participate in larger market segments. Several of these new products and product improvements were developed by means of an unusual investment program of the Company called the New Venture Fund. Established in 1972, the Fund directs monies representing one-half percent of sales into the development of new products and services. This concept allows for entrepreneurial risk taking in new areas by encouraging innovation and competition among the Company's managers for funds to pursue new programs and activities independent of their operating budgets. Examples of New Venture projects include the funding of second generation adjustable pedal research, FoamLyne(TM) flexible fuel hose and most of the early seed money for certain medical products. The Company's business is separated into three business segments -- Commercial, Medical and Aerospace. 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. Products in the Commercial Segment generally are less complex and are produced in higher unit volume than those of the Company's other two segments. They are manufactured both for general distribution as well as custom fabricated to meet individual customer needs. Consumer spending patterns generally influence the market trends for these products. The Commercial Segment consists of three major product lines: Marine, Automotive and Industrial. The Company is a leading domestic producer of mechanical steering systems for pleasure power boats. It also manufactures hydraulic steering systems, engine throttle and shift controls, electrical gauges and instrumentation, GPS driven navigation systems, autopilots and electronic fishfinders. The Company's marine products are sold principally to boat builders and in the aftermarket with the Humminbird line of electronic fishfinders sold substantially through retail outlets. These products are used principally on pleasure craft but also have application on commercial vessels. The Company is a major supplier of driver control systems to automotive manufacturers worldwide. The principal products in this market are accelerator, transmission shift, park lock, window regulator controls, pedal box, gearshift systems and adjustable pedal systems. In May 1997 the Company acquired Comcorp Technologies, Inc. a supplier of pedal assemblies and other automotive components and systems. In December 1997 the Company acquired United Parts Group N.V. a European manufacturer of gearshift systems and other components supplying most of the European auto and truck makers. The Truck Systems Division of United Parts was sold in February 1998. The remaining Driver Control Division, with five manufacturing plants throughout Europe, expanded the Company's entrance into the European automotive market. The acquisitions of both Comcorp and United Parts are part of the Company's strategy to integrate cable controls with other automotive components in order to provide systems solutions for customers. Acceptance by the automobile manufacturers of a Company-developed control for use on a new model ordinarily assures the Company a large, but not exclusive, market share for the supply of that control. 1 3 Industrial controls and electrical instrumentation products are also manufactured for use in other applications, including construction and agricultural equipment, leisure vehicles and other on- and off-road vehicles. In addition, the Company produces stainless steel overbraided fluoroplastic hose for fluid transfer in such markets as the chemical, petroleum, food processing, aerospace and automotive industries. MEDICAL SEGMENT The Medical Segment manufactures and distributes a broad range of invasive disposable and reusable devices for the urology, gastroenterology, anesthesiology and respiratory care markets worldwide. It also designs and manufactures a variety of surgical instruments, closure systems and provides instrument management services. Products in this segment generally are required to meet exacting standards of performance and have long product life cycles. External economic influences on sales relate primarily to spending patterns in the worldwide medical devices and supplies market. Within the Medical Segment, the Company has two major product lines: Hospital Supply and Surgical Devices. In addition the Company has extrusion capabilities which it uses to serve original equipment manufacturers. Through Teleflex OEM, the Company also produces standard and custom-designed semi- finished components for other medical device manufacturers using its polymer materials and processing technology. In 1989, the acquisition of Willy Rusch AG and affiliates in Germany brought with it an established manufacturing base and distribution network, primarily in Europe. This and other smaller acquisitions designed to broaden the Company's product offerings combine to form the base of the Hospital Supply product line. The Hospital Supply product line includes the manufacture and sale of invasive disposable and reusable devices for the urology, gastroenterology, anesthesiology and respiratory care markets worldwide. Product offerings include, among others, latex catheters, endotracheal tubes, laryngoscopes, face masks, tracheostomy tubes and stents for airway and esophageal management. The acquisitions of the Pilling Company in 1991 and Edward Weck Incorporated in 1993 became the foundation of the Surgical Devices product line. The Pilling and Weck businesses significantly expanded the product offerings, marketing opportunities and selling capabilities in the surgical devices market in the United States and provided opportunities for increasing international sales. During 1994 and 1995, smaller acquisitions were made to balance the Company's product offerings in Europe. In 1997 the acquisition of a manufacturer with a complementary line of closure products increased the Company's product offerings. The Surgical Devices product line focuses on three distinct markets: surgical instruments, surgical closure products and instrument management services. Each market is served by a separate sales force and management team. Surgical Devices designs, manufactures and distributes, primarily through its own sales force, instruments used in both open and minimally-invasive surgical procedures including general and specialized surgical instruments such as scissors, forceps, vascular clamps, needle holders and retractors; closure products such as ligation clips, appliers and skin staples; and, provides specialized instrument management services. In 1998, the Company expanded its instrument management service capabilities with the purchase of Sterilization Management Group (SMG) which operates five reprocessing/sterilization plants specializing in reusable surgical textiles and surgical instruments. In 1999, the Company further expanded its instrument management services with the purchase of Medical Sterilization, Inc. and expanded its mix and distribution of the Surgical Devices product line in the U.S. with the acquisition of Kmedic, an orthopedic instrument company. AEROSPACE SEGMENT The Aerospace Segment serves the commercial aerospace and turbine engine markets. Its businesses design and manufacture precision controls and cargo systems for aviation; provide coatings, repair services and manufactured components for users of both flight and land-based turbine engines. Sales are both to original equipment manufacturers and the aftermarket. These products and services, many of which are proprietary, require a high degree of engineering sophistication and are often custom designed. External economic influences on these products and services relate primarily to spending patterns in the worldwide aerospace industry. 2 4 Telair International manufactures and distributes cargo handling systems for commercial aircraft and other aircraft controls. The Company's cargo handling systems include patented digitally controlled systems to move and secure containers of cargo inside commercial aircraft. In 1997 the Company acquired Scandinavian Bellyloading Company, a European manufacturer of cargo loading systems for narrow-body aircraft which complements the Company's existing wide-body cargo handling systems. Cargo handling systems are sold either to aircraft manufacturers as original installations or to airlines and air freight carriers for retrofit of existing systems. In 1999, the Company acquired Century Aero Products, a domestic manufacturer of cargo containers which complements the Company's cargo handling systems and positions the Company as a full service provider of both wide-body and narrow-body cargo handling systems and components. The Company also designs, manufactures and repairs mechanical and electromechanical components used on both commercial and, to a lesser extent military aircraft. These other aircraft controls include flight controls, canopy and door actuators, cargo winches and control valves. The Company's design engineers work with design personnel from the major aircraft manufacturers in the development of controls for use on new aircraft. In addition, the Company supplies spare parts to aircraft operators typically through distributors. This spare parts business extends as long as the particular type of aircraft continues in service. Sermatech International, through a network of facilities in eight countries, provides a variety of sophisticated protective coatings and repair services for ground turbine engine components; highly-specialized repairs for critical components such as fan blades and airfoils for flight-based turbine engines; and manufacturing and high quality dimensional finishing of airfoils and other turbine engine components. The Company has added technologies through acquisition and internal development and now offers a diverse range of technical services and materials technologies to turbine markets throughout the world. In 1995 the Company formed a joint venture, Airfoil Technologies International LLC (ATI), with General Electric Aircraft Engines to provide fan blade and airfoil repair services for flight-based turbine engine blades. The Sermatech repair operations were contributed to ATI which is owned 51% by the Company. ATI provides a vehicle for the technological and geographic expansion of the Sermatech repairs services business. To further broaden the Company's turbo-machinery technological and manufacturing capabilities, and to improve the range of product offerings, the Company, in 1996 acquired Lehr Precision, Inc., an electro-chemical machining manufacturer of turbo-machinery components used on both flight and ground turbines. In 1997 the Company acquired Gas-Path Technology, Inc. to expand its ground turbine repair capabilities within the Sermatech network of facilities. In 1999 the Company formed a joint venture in Korea with Samsung Aerospace to coat turbine engine blades which will complement the Company's array of services for these components. MARKETING In 1999, the percentages of the Company's consolidated net sales represented by its major markets were as follows: aerospace -- 30%; medical -- 23%; and commercial -- 47%. The major portion of the Company's products are sold to original equipment manufacturers. Generally, products sold to the aerospace and automotive markets are sold through the Company's own force of field engineers. Products sold to the marine, medical and general industrial markets are sold both through the Company's own sales forces and through independent representatives and independent distributor networks. For information on foreign operations, export sales, and principal customers, see text under the heading "Business segments and other information" on page 22 of the Company's 1999 Annual Report to Shareholders, which information is incorporated herein by reference. COMPETITION The Company has varying degrees of competition in all elements of its business. None of the Company's competitors offers products for all the markets served by the Company. The Company believes that its competitive position depends on the technical competence and creative ability of its engineering and development personnel, the know-how and skill of its manufacturing personnel as well as its plants, tooling and other resources. 3 5 PATENTS The Company owns a number of patents and has a number of patent applications pending. The Company does not believe that its business is materially dependent on patent protection. SUPPLIERS Materials used in the manufacture of the Company's products are purchased from a large number of suppliers. The Company is not dependent upon any single supplier for a substantial amount of the materials it uses. BACKLOG As of December 26, 1999 the Company's backlog of firm orders for the Aerospace Segment was $295 million, of which it is anticipated that more than one-half will be filled in 2000. The Company's backlog for the Aerospace Segment on December 27, 1998 was $418 million. As of December 26, 1999 the Company's backlog of firm orders for the Medical and Commercial segments was $22 million and $144 million, respectively. This compares with $21 million and $124 million, respectively, as of December 27, 1998. Substantially all of the December 26, 1999 backlog will be filled in 2000. Most of the Company's medical and commercial products are sold on orders calling for delivery within no more than a few months so that the backlog of such orders is not indicative of probable net sales in any future 12-month period. EMPLOYEES The Company had approximately 14,700 employees at December 26, 1999. EXECUTIVE OFFICERS The names and ages of all executive officers of the Company as of March 1, 2000 and the positions and offices with the Company held by each such officer are as follows:
POSITIONS AND OFFICES NAME AGE WITH COMPANY - ---- --- --------------------- Lennox K. Black 69 Chairman of the Board, Chief Executive Officer and Director John J. Sickler 57 Senior Vice President Dr. Roy C. Carriker 62 President and Chief Operating Officer -- TFX Aerospace Harold L. Zuber, Jr. 50 Vice President and Chief Financial Officer Steven K. Chance 54 Vice President, General Counsel and Secretary Ronald D. Boldt 57 Vice President -- Human Resources Janine Dusossoit 46 Vice President -- Investor Relations Thomas M. Byrne 53 Assistant Treasurer Stephen J. Gambone 43 Controller and Chief Accounting Officer
Mr. Black replaced David S. Boyer as Chief Executive Officer on January 31, 2000. Prior to that date he was Chairman of the Board. Mr. Boyer resigned his position as President and Chief Executive Officer on January 31, 2000. Mr. Gambone was elected Controller and Chief Accounting Officer on April 24, 1998. Prior to that date he was Manager, Internal Auditing and Reporting. Officers are elected by the Board of Directors for one year terms. No family relationship exists among any of the executive officers of the Company. 4 6 ITEM 2. PROPERTIES The Company's operations have approximately 100 owned and leased properties consisting of plants, engineering and research centers, distribution warehouses and other facilities. The properties are maintained in good operating condition. All the plants are suitably equipped and utilized, and have space available for the activities currently conducted therein and the increased volume expected in the foreseeable future. The following are the Company's major facilities:
SQUARE OWNED OR EXPIRATION LOCATION FOOTAGE LEASED DATE - -------- ------- -------- ---------- COMMERCIAL SEGMENT Dassel, Germany............................................. 140,000 Owned N/A Van Wert, OH................................................ 130,000 Owned(1) N/A Warren, MI.................................................. 115,000 Leased 2004 Limerick, PA................................................ 110,000 Owned N/A Kendallville, IN............................................ 108,000 Owned N/A Dalstorp, Sweden............................................ 105,000 Owned N/A Hagerstown, MD.............................................. 103,000 Owned(1) N/A Waterbury, CT............................................... 99,000 Leased 2003 Eufaula, AL................................................. 98,000 Owned N/A Haysville, KS............................................... 98,000 Leased 2003 Suffield, CT................................................ 90,000 Leased 2009 Hillsdale, MI............................................... 85,000 Owned(1) N/A Sarasota, FL................................................ 82,000 Owned(1) N/A Willis, TX.................................................. 70,000 Owned(1) N/A Nuevo Laredo, Mexico........................................ 67,000 Leased 2008 Eufaula, AL................................................. 61,000 Owned N/A Birmingham, England......................................... 60,000 Leased 2016 La Clusienne, France........................................ 60,000 Owned N/A Plymouth, MI................................................ 55,000 Leased 2003 Lebanon, VA................................................. 53,000 Owned(1) N/A Lyons, OH................................................... 50,000 Owned N/A Vrable, Slovakia............................................ 49,000 Leased 2003 Auburn Hills, MI............................................ 38,000 Owned N/A Goteborg, Sweden............................................ 38,000 Owned N/A Swainsboro, GA.............................................. 37,000 Leased 2004 Richmond, Canada............................................ 35,000 Leased 2002 Pickens, SC................................................. 35,000 Leased 2004 Vancouver, B.C., Canada..................................... 30,000 Owned N/A Troy, MI.................................................... 29,000 Leased 2003 Selmer, TN.................................................. 24,000 Leased 2002 Birmingham, England......................................... 24,000 Leased 2011 Poole, England.............................................. 20,000 Owned N/A MEDICAL SEGMENT Kernen, Germany............................................. 263,000 Owned N/A Durham, NC.................................................. 144,000 Owned N/A Kernen, Germany............................................. 114,000 Leased 2013 Syosset, NY................................................. 100,000 Leased 2001 Taiping, Malaysia........................................... 85,000 Owned N/A Lurgan, Northern Ireland.................................... 80,000 Owned N/A Duluth, GA.................................................. 69,000 Leased 2009 Fort Washington, PA......................................... 65,000 Owned N/A Jaffrey, NH................................................. 60,000 Owned(1) N/A
5 7
SQUARE OWNED OR EXPIRATION LOCATION FOOTAGE LEASED DATE - -------- ------- -------- ---------- Franiere, Belgium........................................... 59,000 Leased 2005 Tampa, FL................................................... 47,000 Leased 2002 Houston, TX................................................. 46,000 Leased 2003 Montevideo, Uruguay......................................... 45,000 Owned N/A Baltimore, MD............................................... 40,000 Leased 2002 Bad Liebenzell, Germany..................................... 36,000 Leased 2001 Bourg-en-Bresse, France..................................... 34,000 Leased 2000 Betschdorf, France.......................................... 32,000 Owned N/A Livonia, MI................................................. 32,000 Leased 2003 High Wycombe, England....................................... 25,000 Leased 2012 Limerick, Ireland........................................... 16,000 Leased 2020 AEROSPACE SEGMENT Cincinnati, OH.............................................. 160,000 Leased 2004 Oxnard, CA.................................................. 145,000 Owned N/A Muncie, IN.................................................. 105,000 Leased 2008 Mentor, OH.................................................. 90,000 Owned N/A Manchester, CT.............................................. 74,000 Owned N/A Limerick, PA................................................ 70,000 Owned N/A Derbyshire, England......................................... 70,000 Leased 2014 Baltimore, MD............................................... 62,000 Leased 2003 Singapore, Asia............................................. 61,000 Owned N/A Lincoln, England............................................ 50,000 Leased 2018 Compton, CA................................................. 49,000 Leased 2010 Cincinnati, OH.............................................. 35,000 Owned N/A Biddeford, ME............................................... 32,000 Owned N/A Hausham, Germany............................................ 30,000 Owned N/A
- --------------- (1) The Company is the beneficial owner of these facilities under installment sale or similar financing agreements. In addition to the above, the Company owns or leases approximately 1,000,000 square feet of warehousing, manufacturing and office space located in the United States, Canada, Europe and Asia. ITEM 3. LEGAL PROCEEDINGS 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 United States Environmental Protection Agency has named the Company as a potentially responsible party 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, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 6 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See "Quarterly Data" on page 23 of the Company's 1999 Annual Report to Shareholders for market price and dividend information. Also see the Note entitled "Borrowings and Leases" on page 21 of such Annual Report for certain dividend restrictions under loan agreements, all of which information is incorporated herein by reference. The Company had approximately 1,300 registered shareholders at February 1, 2000. ITEM 6. SELECTED FINANCIAL DATA See pages 24 and 25 of the Company's 1999 Annual Report to Shareholders, which pages are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the text under the heading "1999 Financial Review" on pages 26 through 31 of the Company's 1999 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the text section entitled "Liquidity, Market Risk and Capital Resources" contained within the "1999 Financial Review" on pages 26 through 31 of the Company's 1999 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages 17 through 23 of the Company's 1999 Annual Report to Shareholders, which pages are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information with respect to the Company's Directors and Director nominees, see "Election Of Directors" and "Additional Information About The Board Of Directors" on pages 2 through 4 of the Company's Proxy Statement for its 2000 Annual Meeting, which information is incorporated herein by reference. For information with respect to the Company's Executive Officers, see Part I of this report on page 4, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See "Additional Information About The Board of Directors", "Board Compensation Committee", "Five-Year Shareholder Return Comparison", "Executive Compensation and Other Information" and "New Plan Benefits" on pages 4 through 13 of the Company's Proxy Statement for its 2000 Annual Meeting, which information is incorporated herein by reference. 7 9 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See "Security Ownership of Certain Beneficial Owners and Management" on pages 1 and 2, "Election Of Directors" on pages 2 and 3, and "New Plan Benefits" on pages 9 through 13 of the Company's Proxy Statement for its 2000 Annual Meeting, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Additional Information About The Board Of Directors", "Board Compensation Committee" and "Executive Compensation and Other Information" on pages 4 through 8 of the Company's Proxy Statement for its 2000 Annual Meeting, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Consolidated Financial Statements: The index to Consolidated Financial Statements and Schedules is set forth on page 10 hereof. (b) Reports on Form 8-K: None. (c) Exhibits: The Exhibits are listed in the Index to Exhibits. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-84148 (filed June 28, 1989), 2-98715 (filed May 11, 1987), 33-34753 (filed May 10, 1990) and 33-53385 (filed April 29, 1994): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 8 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized as of the date indicated below. TELEFLEX INCORPORATED By LENNOX K. BLACK ------------------------------------ Lennox K. Black (Chairman of the Board & Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated below. By HAROLD L. ZUBER, JR. ------------------------------------ Harold L. Zuber, Jr. (Vice President & Principal Financial Officer) By STEPHEN J. GAMBONE ------------------------------------ Stephen J. Gambone (Controller & Principal Accounting Officer) Pursuant to General Instruction D to Form 10-K, this report has been signed by Steven K. Chance as Attorney-in-Fact for a majority of the Board of Directors as of the date indicated below. Lennox K. Black Director Pemberton Hutchinson Director Donald Beckman Director James W. Stratton Director Joseph S. Gonnella, MD Director William R. Cook Director Palmer E. Retzlaff Director Sigismundus W. W. Lubsen Director David S. Boyer Director Patricia C. Barron Director
By STEVEN K. CHANCE ------------------------------------ Steven K. Chance Attorney-in-Fact Dated: March 22, 2000 9 11 TELEFLEX INCORPORATED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements together with the report thereon of PricewaterhouseCoopers LLP dated February 9, 2000 on pages 17 to 25 of the accompanying 1999 Annual Report to Shareholders are incorporated in this Annual Report on Form 10-K. With the exception of the aforementioned information, and those portions incorporated by specific reference in this document, the 1999 Annual Report to Shareholders is not to be deemed filed as part of this report. The following Financial Statement Schedule together with the report thereon of PricewaterhouseCoopers LLP dated February 9, 2000 on page 11 should be read in conjunction with the consolidated financial statements in such 1999 Annual Report to Shareholders. Financial Statement Schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. FINANCIAL STATEMENT SCHEDULE Schedule:
PAGE ---- II Valuation and qualifying accounts........................... 12
10 12 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Teleflex Incorporated Our audits of the consolidated financial statements referred to in our report dated February 9, 2000 appearing on page 23 of the 1999 Annual Report to Shareholders of Teleflex Incorporated (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 9, 2000 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-84148, No. 2-98715, No. 33-34753, and No. 33-53385) of Teleflex Incorporated of our report dated February 9, 2000 appearing on page 23 of the 1999 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears above. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 22, 2000 11 13 TELEFLEX INCORPORATED SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT ADDITIONS DOUBTFUL BALANCE AT BEGINNING CHARGED TO ACCOUNTS END OF FOR THE YEAR ENDED OF YEAR INCOME WRITTEN OFF YEAR - ------------------ ---------- ---------- ----------- ---------- December 26, 1999........................ $4,577,000 $1,613,000 $(1,365,000) $4,825,000 December 27, 1998........................ $5,668,000 $2,190,000 $(3,281,000) $4,577,000 December 28, 1997........................ $4,110,000 $2,218,000 $ (660,000) $5,668,000
12 EX-13 2 TELEFLEX ANNUAL REPORT 1 March 22, 2000 INDEX TO EXHIBITS
EXHIBIT - -------- 3(a) - The Company's Articles of Incorporation (except for Article Thirteenth and the first paragraph of Article Fourth) are incorporated herein by reference to Exhibit 3(a) to the Company's Form 10-Q for the period ended June 30, 1985. Article Thirteenth of the Company's Articles of Incorporation is incorporated herein by reference to Exhibit 3 of the Company's Form 10-Q for the period ended June 28, 1987. The first paragraph of Article Fourth of the Company's Articles of Incorporation is incorporated herein by reference to Exhibit 3(a) of the Company's Form 10-K for the year ended December 27, 1998. (b) - The Company's Bylaws are incorporated herein by reference to Exhibit 3(b) of the Company's Form 10-K for the year ended December 28, 1987. 4 - The Company's Shareholders' Rights Plan is incorporated herein by reference to the Company's Form 8-K dated December 7, 1998. 10(a) - The 1982 Stock Option Plan, incorporated herein by reference to the Company's registration statement on Form S-8 (Registration No. 2-84148), as supplemented, with amendments of April 26, 1991 incorporated by reference to the Company's definitive Proxy Statement for the 1991 Annual Meeting of Shareholders. (b) - The 1990 Stock Compensation Plan, incorporated herein by reference to the Company's registration statement on Form S-8 (Registration No. 33-34753), revised and restated as of December 1, 1997 incorporated by reference to Exhibit 10(b) of the Company's Form 10-K for the year ended December 28, 1997. (c) - The Salaried Employees' Pension Plan, as amended and restated in its entirety, effective July 1, 1989 and the retirement income plan as amended and restated in its entirety effective January 1, 1994 and related Trust Agreements, dated July 1, 1994 is incorporated by reference to the Company's Form 10-K for the year ended December 25, 1994. (d) - Description of deferred compensation arrangements between the Company and its Chairman, L. K. Black, incorporated by reference to the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. (e) - Description of compensation arrangement between the Company and its President and Chief Executive Officer, David S. Boyer, incorporated by reference to the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders. (f) - Teleflex Incorporated Deferred Compensation Plan effective as of January 1, 1995, and amended and restated January 1, 1999 is incorporated by reference to Exhibit 10(f) of the Company's Form 10-K for the year ended December 27, 1998. (g) - Information on the Company's Profit Participation Plan, insurance arrangements with certain officers and deferred compensation arrangements with certain officers, non-qualified supplementary pension plan for salaried employees and compensation arrangements with directors is incorporated by reference to the Company's definitive Proxy Statement for the 1998, 1999 and 2000 Annual Meeting of Shareholders. (h) - The Company's Voluntary Investment Plan is incorporated by reference to Exhibit 28 of the Company's registration statement on Form S-8 (Registration No. 2-98715). 13 - Pages 17 through 31 of the Company's Annual Report to Shareholders for the period ended December 26, 1999. 21 - The Company's Subsidiaries. 23 - Consent of Independent Accountants (see page 11 herein). 24 - Power of Attorney. 27 - Financial Data Schedule.
2 17 Exhibit 13 Teleflex Incorporated and Subsidiaries CONSOLIDATED STATEMENT OF INCOME
Year ended - ----------------------------------------------------------------------------------------------------------------------- DECEMBER 26, December 27, December 28, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share) REVENUES $1,601,069 $1,437,578 $1,145,773 - ----------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Materials, labor and other product costs 1,155,879 1,029,658 794,780 Selling, engineering and administrative expenses 284,702 266,106 230,153 Interest expense, net 17,732 17,054 14,435 - ----------------------------------------------------------------------------------------------------------------------- 1,458,313 1,312,818 1,039,368 - ----------------------------------------------------------------------------------------------------------------------- Income before taxes 142,756 124,760 106,405 Taxes on income 47,536 42,210 36,333 - ----------------------------------------------------------------------------------------------------------------------- NET INCOME $ 95,220 $ 82,550 $ 70,072 - ----------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE Basic $ 2.52 $ 2.21 $ 1.91 Diluted $ 2.47 $ 2.15 $ 1.86 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 3 18 Teleflex Incorporated and Subsidiaries CONSOLIDATED BALANCE SHEET
Year ended - ----------------------------------------------------------------------------------------------------------------------- DECEMBER 26, December 27, 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS Current assets Cash and cash equivalents $ 29,040 $ 66,689 Accounts receivable, less allowance for doubtful accounts, 1999 - $4,825; 1998 - $4,577 324,629 295,369 Inventories 227,486 235,869 Prepaid expenses 23,785 19,015 - ----------------------------------------------------------------------------------------------------------------------- Total current assets 604,940 616,942 - ----------------------------------------------------------------------------------------------------------------------- Plant assets Land and buildings 162,425 149,883 Machinery and equipment 604,048 539,594 - ----------------------------------------------------------------------------------------------------------------------- 766,473 689,477 Less accumulated depreciation 300,572 257,721 - ----------------------------------------------------------------------------------------------------------------------- Net plant assets 465,901 431,756 Investments in affiliates 55,749 50,932 Intangibles and other assets 136,854 116,287 - ----------------------------------------------------------------------------------------------------------------------- $1,263,444 $1,215,917 - ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Demand loans $ 61,300 $ 50,076 Current portion of long-term borrowings 37,200 41,575 Accounts payable 99,968 99,207 Accrued expenses 104,614 95,318 Income taxes payable 26,330 25,303 - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 329,412 311,479 Long-term borrowings 246,191 275,581 Deferred income taxes and other 85,277 94,407 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities 660,880 681,467 - ----------------------------------------------------------------------------------------------------------------------- Shareholders' equity Common shares, $1 par value Issued: 1999 - 38,018,735 shares; 1998 - 37,614,823 shares 38,019 37,615 Additional paid-in capital 73,786 72,080 Retained earnings 515,483 439,389 Accumulated other comprehensive income (24,724) (14,634) - ----------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 602,564 534,450 - ----------------------------------------------------------------------------------------------------------------------- $1,263,444 $1,215,917 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 4 19 Teleflex Incorporated and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended - ----------------------------------------------------------------------------------------------------------------------- DECEMBER 26, December 27, December 28, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 95,220 $ 82,550 $ 70,072 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 67,389 60,105 47,940 Deferred income taxes 4,710 2,702 1,530 (Increase) in accounts receivable (32,325) (24,745) (38,886) Decrease (increase) in inventories 5,472 (8,626) (13,920) (Increase) decrease in prepaid expenses (4,710) 2,676 (3,477) (Decrease) increase in accounts payable and accrued expenses (4,870) 12,777 13,896 Increase in income taxes payable 3,182 4,188 3,635 - ----------------------------------------------------------------------------------------------------------------------- 134,068 131,627 80,790 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from new borrowings 50,866 42,868 85,259 Reduction in long-term borrowings (46,941) (19,670) (43,488) Increase (decrease) in current borrowings and demand loans 1,812 (39,029) 36,948 Proceeds from stock compensation plans 5,890 5,918 4,362 Dividends (19,126) (16,628) (14,258) - ----------------------------------------------------------------------------------------------------------------------- (7,499) (26,541) 68,823 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for plant assets (96,516) (69,063) (74,622) Payments for businesses acquired (43,895) (22,026) (99,802) Proceeds from disposition of product lines and assets -- 35,868 -- Investments in affiliates (22,377) (15,691) (11,466) Other (1,430) 1,813 (1,639) - ----------------------------------------------------------------------------------------------------------------------- (164,218) (69,099) (187,529) - ----------------------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (37,649) 35,987 (37,916) Cash and cash equivalents at the beginning of the year 66,689 30,702 68,618 - ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the year $ 29,040 $ 66,689 $ 30,702 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 5 20 Teleflex Incorporated and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended - ----------------------------------------------------------------------------------------------------------------------- DECEMBER 26, December 27, December 28, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share) COMMON SHARES Balance, beginning of year $ 37,615 $ 37,118 $ 18,111 Shares issued under compensation plans 404 497 235 Common stock dividend -- -- 18,520 Shares issued in acquisitions -- -- 252 - ----------------------------------------------------------------------------------------------------------------------- Balance, end of year 38,019 37,615 37,118 - ----------------------------------------------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL Balance, beginning of year 72,080 63,158 58,941 Shares issued under compensation plans 1,706 8,922 4,127 Shares issued in acquisitions -- -- 90 - ----------------------------------------------------------------------------------------------------------------------- Balance, end of year 73,786 72,080 63,158 - ----------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, beginning of year 439,389 373,467 336,173 Net income 95,220 82,550 70,072 Cash dividends (19,126) (16,628) (14,258) Common stock dividend -- -- (18,520) - ----------------------------------------------------------------------------------------------------------------------- Balance, end of year 515,483 439,389 373,467 - ----------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Cumulative translation adjustment (20,875) (14,634) (9,990) Unrealized loss on securities (3,849) -- -- - ----------------------------------------------------------------------------------------------------------------------- Balance, end of year (24,724) (14,634) (9,990) - ----------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 602,564 $ 534,450 $463,753 - ----------------------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER SHARE $ .51 $ .45 $ .39 - ----------------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME Net income $ 95,220 $ 82,550 $ 70,072 Cumulative translation adjustment (6,241) (4,644) (5,941) Unrealized loss on securities (3,849) -- -- - ----------------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 85,130 $ 77,906 $ 64,131 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 6 21 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:
1999 1998 - -------------------------------------------------------------------------------- Raw materials $ 84,490 $ 80,891 Work-in-process 38,690 41,646 Finished goods 104,306 113,332 - -------------------------------------------------------------------------------- $227,486 $235,869 - --------------------------------------------------------------------------------
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 1999 and 1998 the company acquired various smaller businesses across several markets for $43,895 and $22,026 in cash, respectively. For 1999 and 1998 liabilities of $9,924 and $29,422 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
1999 1998 - -------------------------------------------------------------------------------- Senior Notes at an average fixed rate of 6.9%, due in installments through 2008 $ 61,000 $ 68,500 Term loan notes, primarily Euro, at an average fixed rate of 5.3%, with an average maturity of three years 127,359 166,066 Other debt, mortgage notes and capital lease obligations, at interest rates ranging from 3% to 9% 95,032 82,590 -------- -------- 283,391 317,156 Current portion of borrowings (37,200) (41,575) -------- -------- $246,191 $275,581 -------- --------
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, $141,000 of retained earnings was available for dividends at December 26, 1999. The weighted average interest rate on the $61,300 of demand loans was 5.0% at December 26, 1999. In addition, the company has approximately $200,000 available under several interest rate alternatives in unused lines of credit. Interest expense in 1999, 1998 and 1997 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 2000 are as follows: 2001 - $59,335; 2002 - $93,427; 2003 - $18,165; 2004 - $25,235. The company has entered into certain operating leases which require minimum annual payments as follows: 2000 - $24,109; 2001 - $20,568; 2002 - $16,931; 2003 - - $13,596; 2004 - $12,675. The total rental expense for all operating leases was $25,608, $22,467 and $15,311 in 1999, 1998 and 1997, respectively. 7 22 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 $.03 or less in 1999, 1998 and 1997 had compensation expense for stock options been determined based on the fair value at the grant date. The fair value of options granted during 1999, 1998 and 1997 of $16.50, $13.64 and $10.38, respectively, was estimated using the Black-Scholes option-pricing model. Officers and key employees held options for the purchase of 1,797,140 shares of common stock at prices ranging from $10.58 to $45.50 per share with an average exercise price of $27.10 per share and an average remaining contractual life of 6 years. Such options are presently exercisable with respect to 960,665 shares at an average exercise price of $20.84. Options to purchase 447,750, 47,000 and 421,175 shares of common stock were granted at average exercise prices of $40.97, $40.59 and $30.39, in 1999, 1998 and 1997, respectively. Options exercised were 517,690, 390,195 and 457,752 at average exercise prices of $13.96, $14.84 and $13.05 in 1999, 1998 and 1997, 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:
1999 1998 1997 - ------------------------------------------------------------------------------- Current Federal $33,978 $32,278 $24,557 State 3,335 3,239 2,622 Foreign 5,513 3,991 7,624 Deferred 4,710 2,702 1,530 - ------------------------------------------------------------------------------- $47,536 $42,210 $36,333 - -------------------------------------------------------------------------------
The deferred income taxes provided and the balance sheet amounts of $41,333 in 1999 and $38,896 in 1998 related substantially to the methods of accounting for depreciation. Income taxes paid were $39,923, $31,028 and $29,581 in 1999, 1998 and 1997, respectively.
1999 1998 1997 - ------------------------------------------------------------------------------- Tax at U.S. statutory rate 35.0% 35.0% 35.0% State income taxes 1.6 1.7 1.7 Foreign income taxes (1.8) (1.3) (.7) Export sales benefit (1.5) (1.5) (1.6) Other -- (.1) (.3) - ------------------------------------------------------------------------------- Effective income tax rate 33.3% 33.8% 34.1% - -------------------------------------------------------------------------------
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 24 and 25 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:
1999 1998 1997 - ------------------------------------------------------------------------------- Revenues $642,827 $571,587 $373,437 Identifiable assets $539,282 $551,440 $458,880 Operating profit $ 50,552 $ 38,537 $ 35,077 Export sales $181,500 $151,100 $130,600 - -------------------------------------------------------------------------------
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 1999 and 7.3% in 1998, 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 7.3% in 1999 and in 1998 and an initial health care cost trend rate of 10%, declining to 6% over a period of 5 years. Increasing the trend rate by 1% would increase the benefit obligation by $1,703 and would increase the 1999 benefit expense by $150. Decreasing the trend rate by 1% would decrease the benefit obligation by $1,382 and would decrease the 1999 benefit expense by $120. 8 23 The following tables provide net benefit cost, a reconciliation of benefit obligations, plan assets and funded status of the plans:
Pension Other Benefits - ------------------------------------------------------------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Service cost $ 3,603 $ 3,074 $ 227 $ 216 Interest cost 5,761 5,168 886 826 Actual return (631) (9,471) -- -- Net amortization and deferral (7,420) 2,047 145 98 Foreign plans 1,169 1,666 -- -- - ------------------------------------------------------------------------------- Net benefit cost $ 2,482 $ 2,484 $ 1,258 $ 1,140 - ------------------------------------------------------------------------------- Benefit obligations, beginning of year $ 90,070 $ 78,918 $ 13,537 $ 12,546 Service cost 3,603 3,074 227 216 Interest cost 5,761 5,168 886 826 Amendments 1,675 447 (252) -- Actuarial (gain) loss (2,521) 2,584 1,326 473 Acquisitions (3,184) 1,008 -- -- Currency translation (2,074) 1,206 -- -- Benefits paid (4,410) (4,001) (813) (524) Foreign plans 1,169 1,666 -- -- - ------------------------------------------------------------------------------- Benefit obligations, end of year 90,089 90,070 14,911 13,537 - ------------------------------------------------------------------------------- Fair value of plan assets, beginning of year 77,503 69,300 -- -- Actual return 631 9,471 -- -- Acquisitions -- 950 -- -- Contributions 1,611 875 -- -- Benefits paid (3,519) (3,093) -- -- - ------------------------------------------------------------------------------- Fair value of plan assets, end of year 76,226 77,503 -- -- - ------------------------------------------------------------------------------- Funded status (13,863) (12,567) (14,911) (13,537) Unrecognized transition (asset) obligation (1,032) (688) 5,441 5,860 Unrecognized net actuarial gain (10,205) (13,858) (1,353) (2,900) Unrecognized prior service cost 3,189 1,645 414 (392) - ------------------------------------------------------------------------------- Accrued benefit cost $(21,911) $(25,468) $(10,409) $(10,969) - -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS [PricewaterhouseCoopers LOGO] To the Board of Directors and Shareholders Teleflex Incorporated In our opinion, the consolidated financial statements appearing on pages 17 through 23 of this Annual Report present fairly, in all material respects, the financial position of Teleflex Incorporated and its subsidiaries at December 26, 1999 and December 27, 1998 and the results of their operations and cash flows for each of the three years in the period ended December 26, 1999, 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 generally accepted auditing standards 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 the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 9, 2000 QUARTERLY DATA (unaudited)
- -------------------------------------------------------------------------------- 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
- -------------------------------------------------------------------------------- 1998 First Second Third Fourth - -------------------------------------------------------------------------------- Revenues $345,760 $363,011 $342,962 $385,845 Gross profit 100,025 103,177 96,167 108,551 Net income 19,858 21,244 16,177 25,271 Basic earnings per share .53 .57 .43 .68 Diluted earnings per share .52 .55 .42 .66 - --------------------------------------------------------------------------------
9 24 Teleflex Incorporated and Subsidiaries SELECTED FINANCIAL AND BUSINESS SEGMENT DATA
1999 1998 1997 - -------------------------------------------------------------------------------- Revenues Commercial $ 757,720 $ 649,644 $ 497,366 Medical 372,282 338,305 323,114 Aerospace 471,067 449,629 325,293 Other income(a) -- -- -- - -------------------------------------------------------------------------------- $1,601,069 $1,437,578 $1,145,773 - -------------------------------------------------------------------------------- Operating profit Commercial $ 75,823 $ 62,010 $ 61,562 Medical 49,551 41,879 35,466 Aerospace 52,940 55,163 38,787 - -------------------------------------------------------------------------------- 178,314 159,052 135,815 Interest expense, net 17,732 17,054 14,435 Corporate expenses, net of other income 17,826 17,238 14,975 - -------------------------------------------------------------------------------- Income before taxes 142,756 124,760 106,405 Taxes on income 47,536 42,210 36,333 - -------------------------------------------------------------------------------- Net income $ 95,220 $ 82,550 $ 70,072 - -------------------------------------------------------------------------------- Basic earnings per share $ 2.52 $ 2.21 $ 1.91 Diluted earnings per share $ 2.47 $ 2.15 $ 1.86 Cash dividends per share $ .51 $ .45 $ .39 Average common shares outstanding 37,857 37,347 36,759 Average shares, assuming dilution 38,525 38,425 37,661 Net income as a percent of revenues 5.9% 5.7% 6.1% Average number of employees 13,980 12,603 10,830 Identifiable assets Commercial $ 451,389 $ 405,347 $ 351,345 Medical $ 388,430 $ 361,282 $ 333,698 Aerospace $ 332,109 $ 324,532 $ 276,708 Capital expenditures Commercial $ 43,623 $ 26,243 $ 22,570 Medical $ 17,751 $ 13,943 $ 10,611 Aerospace $ 33,523 $ 28,561 $ 40,992 Depreciation and amortization Commercial $ 24,875 $ 23,353 $ 14,335 Medical $ 20,574 $ 18,044 $ 18,459 Aerospace $ 21,132 $ 17,852 $ 14,440 Long-term borrowings $ 246,191 $ 275,581 $ 237,562 Shareholders' equity $ 602,564 $ 534,450 $ 463,753 Book value per share $ 15.85 $ 14.21 $ 12.49 Return on average shareholders' equity 16.7% 16.5% 16.1% - --------------------------------------------------------------------------------
10 25
1996 1995 1994 1993 1992 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------- (Dollars and shares in thousands, except per share and employee data) $422,443 $403,637 $356,708 $284,106 $210,464 $168,598 $162,646 $173,957 307,555 293,341 253,020 180,623 179,376 130,540 115,756 42,406 201,185 215,711 202,944 202,067 177,292 180,399 162,731 139,262 -- -- -- -- 3,206 3,472 3,080 4,441 - -------- -------- -------- -------- -------- -------- -------- -------- $931,183 $912,689 $812,672 $666,796 $570,338 $483,009 $444,213 $360,066 - -------- -------- -------- -------- -------- -------- -------- -------- $ 57,849 $ 59,719 $ 53,324 $ 37,794 $ 25,754 $ 19,996 $ 22,224 $ 22,025 34,630 30,237 32,386 21,486 25,463 19,900 16,183 5,782 21,007 12,683 5,367 14,906 16,100 21,722 20,781 20,711 - -------- -------- -------- -------- -------- -------- -------- -------- 113,486 102,639 91,077 74,186 67,317 61,618 59,188 48,518 13,876 18,632 18,361 14,466 15,482 13,765 12,401 6,886 12,831 10,407 9,725 7,410 3,185 2,519 3,880 2,395 - -------- -------- -------- -------- -------- -------- -------- -------- 86,779 73,600 62,991 52,310 48,650 45,334 42,907 39,237 29,617 24,730 21,795 18,624 16,638 15,527 14,340 12,440 - -------- -------- -------- -------- -------- -------- -------- -------- $ 57,162 $ 48,870 $ 41,196 $ 33,686 $ 32,012(b) $ 29,807 $ 28,567 $ 26,797 - -------- -------- -------- -------- -------- -------- -------- -------- $ 1.61 $ 1.40 $ 1.20 $ .99 $ .95(b) $ .90 $ .87 $ .83 $ 1.58 $ 1.37 $ 1.17 $ .98 $ .93(b) $ .88 $ .87 $ .82 $ .34 $ .30 $ .26 $ .23 $ .21 $ .20 $ .18 $ .16 35,482 34,885 34,373 33,958 33,557 33,062 32,667 32,321 36,197 35,574 35,061 34,533 34,264 33,701 32,952 32,805 6.1% 5.4% 5.1% 5.1% 5.6% 6.2% 6.4% 7.4% 9,373 9,553 8,740 7,920 6,920 6,160 5,860 5,080 $227,594 $201,808 $184,971 $158,206 $142,041 $101,187 $ 84,678 $ 90,557 $320,699 $331,349 $311,547 $266,239 $206,562 $194,609 $147,954 $125,635 $194,305 $183,636 $188,348 $202,130 $142,523 $141,104 $143,419 $130,762 $ 12,821 $ 15,445 $ 13,489 $ 7,967 $ 7,386 $ 7,505 $ 5,581 $ 5,507 $ 10,421 $ 12,107 $ 7,029 $ 7,361 $ 5,316 $ 7,138 $ 4,236 $ 2,373 $ 16,767 $ 2,794 $ 4,538 $ 8,865 $ 6,384 $ 5,585 $ 7,166 $ 10,701 $ 11,907 $ 11,446 $ 9,930 $ 9,251 $ 6,262 $ 5,633 $ 5,369 $ 4,715 $ 16,267 $ 15,087 $ 11,694 $ 8,030 $ 6,505 $ 4,725 $ 3,999 $ 1,693 $ 9,827 $ 10,471 $ 10,771 $ 10,176 $ 8,002 $ 7,366 $ 7,024 $ 5,777 $195,945 $196,844 $190,499 $183,504 $134,600 $119,370 $112,941 $106,128 $409,176 $355,364 $309,024 $269,790 $240,467 $211,702 $187,875 $160,038 $ 11.30 $ 10.13 $ 8.94 $ 7.90 $ 7.12 $ 6.37 $ 5.72 $ 4.94 15.0% 14.7% 14.2% 13.2% 14.2% 14.9% 16.4% 18.1% - -------- -------- -------- -------- -------- -------- -------- --------
(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. 11 26 Teleflex Incorporated and Subsidiaries 1999 FINANCIAL REVIEW 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 we have met our target as revenues and net income have grown by a compounded rate of 15% and 18%, respectively. In addition 1999 was the sixth consecutive year of 15% or higher growth in net income. The 1999 return on average shareholders' equity was 16.7% and has improved in each of the last six 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 from changes in the business cycle of any one segment, thus assisting the company in consistently achieving its growth objectives. It also gives the company the ability to invest in all phases of a segment's market cycle and provides a broader base of markets in which to grow. Balance is also maintained within the segments by diversifying into new geographic areas, different sectors within a market or additional markets. As a result, despite cyclical downturns in each of the segments the company's total operating profit has continued to increase. The company intends to achieve its growth objectives internally through both development of new products and new markets for existing products and externally, primarily through acquisitions. Over the past five years the company's internal growth has accounted for one-half of its overall growth. During the same time the company has invested cash of approximately $200 million for acquisitions which have accounted for the other half of the revenue increase. During 1998 and 1999, the company purchased businesses with annualized sales of approximately $120 million, $60 million of which is included in 1999 revenues. These acquisitions fit strategically within the company's businesses and bring new technologies, capabilities and market opportunities that will supplement future growth. Acquisitions, while adding initially to revenues, generally do not contribute proportionately to earnings in the early years. In these years, earnings are generally reduced by up-front costs such as interest, depreciation and amortization, and, in many instances, the expenses of integrating a newly acquired business into an existing operation. Additionally, many of the acquisitions include new technologies and products that require incremental investment to enhance their future growth prospects. Revenues (in millions) [GRAPH] The company has maintained a conservative capital structure with long-term debt ranging from 30% to 40% of total capitalization. This provides the flexibility to increase borrowings should growth opportunities arise. Under these circumstances it is conceivable that debt may increase to as much as 50% of capitalization for a period of time. The use of debt financing enables the company to maintain a lower cost of capital thus further enhancing value for shareholders. The company finances 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 internal growth initiatives while borrowings have been incurred largely to finance acquisitions. Over the past five years cash flow from operations has totaled nearly $500 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. 12 27 RESULTS OF OPERATIONS 1999 VS. 1998 Revenues increased 11% in 1999 to $1.6 billion from $1.4 billion in 1998. The increase was attributable to gains in each of the company's three segments. Acquisitions accounted for nearly 40% of the increase in revenues. For 1999 the Commercial, Medical and Aerospace segments comprised 47%, 23% and 30% of the company's net sales, respectively. Non-domestic operations which comprised 40% of the company's revenues, increased 12% over 1998 and were reduced slightly by currency exchange rates. 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 percentage 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. For 1999 the Commercial, Medical and Aerospace segments represented 42%, 28% and 30% of the company's operating profit, respectively. Operating profit as a percentage of sales (operating margin) remained unchanged at 11.1% as an increase in the Medical and Commercial segments offset a decline in the Aerospace Segment. 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. 1998 VS. 1997 Revenues gained 25% in 1998 to $1.4 billion from $1.1 billion in 1997 resulting from increases at each of the company's three segments. Acquisitions accounted for 60% of the company's increase in revenue. For 1998 the Commercial, Medical and Aerospace segments accounted for 45%, 24% and 31% of the company's revenues, respectively. Non-domestic operations comprised 40% of the company's revenues, increased 53% over 1997 and were not significantly affected by changes in currency exchange rates. The increase in non-domestic sales resulted primarily from the acquisition of a manufacturer of automotive driver control systems. Gross profit margin declined in 1998 to 28.4% from 30.6% in 1997 despite increases in the Medical and Aerospace segments. 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 acquisitions in the Commercial Segment contributed to the decrease. Operating expenses as a percentage of sales improved to 18.5% from 20.1% in 1997 resulting from reductions in the Commercial and Medical segments. In addition, a decline in the proportion of sales from the Medical Segment contributed to lowering the operating expense percentage. Operating profit increased 17% in 1998 to $159.1 million from $135.8 million in 1997 while operating margin declined to 11.1% from 11.9%. For 1998 the Commercial, Medical and Aerospace segments represented 39%, 26% and 35% of the company's operating profit, respectively. All three segments reported increases in operating profit with Aerospace contributing the largest gain. The decrease in operating margin resulted from the decline in the Commercial Segment which offset the increases in Medical and Aerospace. Net income in 1998 increased 18% to $82.6 million and diluted earnings per share increased 16% to $2.15. Basic earnings per share increased 16% to $2.21. INTEREST EXPENSE AND INCOME TAX EXPENSE Interest expense increased in 1999 as a result of higher interest rates and lower invested cash balances. Interest expense increased in 1998 as a result of additional borrowings incurred at the end of 1997 to finance acquisitions which offset the effect of lower interest rates. Interest expense as a percentage of sales decreased in 1999 to 1.1% from 1.2% in 1998. The effective income tax rate declined to 33.3% in 1999 compared with 33.8% in 1998 and 34.1% in 1997. In both 1999 and 1998 a higher proportion of income was earned in countries with relatively lower income tax rates. Net Income (in millions) [GRAPH] 13 28 1999 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) [GRAPH] 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 primarily 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 primarily 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 18% from 16% in 1998 primarily due to improved operating profits in the Marine product line. 1998 VS. 1997 Sales in the Commercial Segment increased 31% in 1998 from $497.4 million to $649.6 million resulting from increases in all three product lines, Automotive, Marine and Industrial. The increase in the Automotive product line was primarily due to acquisitions including a manufacturer of automotive driver control systems. The North American sales growth rate was slower from the effects of the General Motors strike. Within the Marine product line, increases in sales of non-marine products offset a decline in sales of marine electronics products. Additional sales of light-duty cable and flexible fluoroplastic hose resulted in the Industrial product line gain. Operating profit increased 1% while operating margin declined to 9.5% in 1998 from 12.4% in 1997. Increases in operating profit and margin in the Industrial product line were offset by declines in Automotive while Marine remained unchanged from the prior year. The declines in Automotive were due to lower margins of acquisitions, expenses related to new products such as the adjustable pedal and costs associated with the General Motors strike. The strike reduced operating profit by approximately $3.4 million, or 5 cents per share. Within the Marine product line, higher operating profits and margins stemming from increased volume of non-marine products were offset by declines from marine electronics products. The Industrial product line increases resulted primarily from the additional volume of flexible fluoroplastic hose. Assets increased in 1998 due primarily to acquisitions in the Automotive product line. Return on average assets declined from 21% in 1997 to 16% in 1998 resulting from the combination of increased assets and lower operating returns from acquisitions. 14 29 Capital Expenditures (in millions) [GRAPH] MEDICAL SEGMENT The Medical Segment manufactures and distributes a broad range of invasive disposable and reusable devices for the urology, gastroenterology, anesthesiology and respiratory care markets worldwide. It also designs and manufactures a variety of surgical devices, closure systems and provides instrument management services. 1999 VS. 1998 In 1999 the Medical Segment sales increased by 10% to $372.3 million from $338.3 million in 1998 primarily 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% from 12% due to the increase in operating profit combined with a relatively smaller increase in the asset base. 1998 VS. 1997 In 1998 Medical Segment sales increased 5% to $338.3 million from $323.1 million resulting primarily from gains in the Surgical Devices product line which offset a decline in Hospital Supply due to currency exchange rates. The increase in Surgical Devices resulted from additional European sales and from growth of instrument management services aided by an acquisition. Operating profit increased 18% in 1998 to $41.9 million from $35.5 million in 1997 and operating margin improved to 12.4% from 11.0%. The increases in operating profit and operating margin are the result of gains in both Hospital Supply and Surgical Devices. The 1998 increases in Surgical Devices are due to unusually high expenses in the prior year from realigning sales and manufacturing by product line. The increases in Hospital Supply are the result of increased sales of higher margin products. Assets increased due to investment in instrument management services including an acquisition and increases in accounts receivable and inventory related to volume. Return on average assets improved from 11% to 12% resulting from the increase in operating profit which more than offset the increase in assets. AEROSPACE SEGMENT The Aerospace Segment serves the commercial aerospace and turbine engine markets. Its businesses design and manufacture precision controls and cargo systems for aviation; provide coatings, repair services and manufactured components for users of both flight and ground-based turbine engines. Sales are both to original equipment manufacturers (OEMs) and the aftermarket. Dividends per Share [GRAPH] 15 30 1999 FINANCIAL REVIEW continued 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 the aerospace repairs and coatings product lines due to growth in the aftermarket sector of the commercial 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 aerospace repairs 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% in 1999 from 18% in 1998 due to the decrease in operating profit. 1998 VS. 1997 Sales in the Aerospace Segment increased 38% in 1998 to $449.6 million from $325.3 million. Each of the Segment's product lines, cargo handling systems, coatings, aerospace repairs and component manufacturing showed gains. The largest contribution to the increase came from component manufacturing which gained from the strength of the aerospace market. In addition, growth in aerospace repairs from the Singapore plant and in coatings from increased sales to the industrial gas turbine market contributed to the gain. Operating profit in 1998 increased 42% to $55.2 million from $38.8 million and operating margin improved slightly to 12.3% from 11.9%. The operating profit gain was primarily the result of additional volume in component manufacturing. The volume gain also contributed to the improved operating margin. The increase in operating margin in this Segment, however, was diluted by higher sales of aerospace repairs which distributes approximately half of its profits to a joint venture partner. The increase in assets in 1998 was due to additional plant and equipment and working capital investments made to accommodate the growth in this Segment during the year. Return on average assets increased from 16% to 18% as the increase in operating profit outpaced the increase in assets during the year. Cash Flow from Operations (in millions) [GRAPH] LIQUIDITY, MARKET RISK AND CAPITAL RESOURCES The company continued to generate high levels of cash from operations. In 1999 cash flows from operating activities grew to $134.1 million compared to $131.6 million in 1998 and $80.8 million in 1997. 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. The increase in 1998 resulted from higher net income and depreciation and amortization and, from improvements in working capital. In addition to the cash generated from operations the company has approximately $200 million in committed and uncommitted unused lines of credit available which provide the ability to pursue strategic growth opportunities. Total borrowings for the company decreased $23 million in 1999 while long-term debt to total capitalization improved to 29% in 1999 from 34% in 1998. The decline in borrowings was the result of currency exchange rate changes which offset net borrowings during the year incurred mainly to finance acquisitions. The $14 million increase in long-term debt in 1998 resulted from borrowings incurred to complete construction of the Singapore repair facility, acquisition financing outside the United States and currency exchange rate changes which were offset by repayments. During the first quarter of 1998 certain acquired non-strategic assets were sold for $36 million in cash and the related borrowings reduced. Approximately 65% of the company's total borrowings of $345 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. 16 31 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 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 use of these derivative instruments, which are contracted only with financial institutions having high investment grade credit ratings, was not significant at December 26, 1999. 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. SHAREHOLDERS' EQUITY Shareholders' Equity increased to $602.6 million at the end of 1999 from $534.5 million at the end of 1998. Book value per share increased to $15.85 at December 26, 1999 compared to $14.21 at December 27, 1998. During 1999 the dividend per share was increased 13% to $.51 per share from $.45 per share in 1998. Return on shareholders' equity increased from 16.5% to 16.7% and is at its highest level in the last ten years. OTHER MATTERS ENVIRONMENTAL 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) [GRAPH] YEAR 2000 The company substantially completed its year 2000 remediation project during 1999. No systems failures causing disruption in normal business operations have occurred. EX-21 3 THE COMPANY'S SUBSIDIARIES 1 EXHIBIT 21 TELEFLEX INCORPORATED SUBSIDIARIES
SUBSIDIARY JURISDICTION PARENT PERCENTAGE OF INCORPORATION 1950 Williams Drive, LLC Delaware TFX Equities 100 924593 Ontario Limited Ontario Teleflex 81 (1) Access Medical S.A. France TFX International S.A. 100 AeroForge Corporation Indiana TFX Equities 100 Airfoil Management Company Delaware TFX Equities 100 Airfoil Management Limited UK Sermatech (U.K.) Limited 100 Airfoil Technologies (Florida), Inc. Delaware Aviation Product Support, Inc. 51 (2) Airfoil Technologies International LLC Delaware TFX Equities 51 (3) Airfoil Technologies Singapore PTE LTD Singapore Airfoil Technologies Internat'l 100 American General Aircraft Holding Co., Inc. Delaware Teleflex 74 Asept Inmed S.A. France TFX International S.A. 100 Asid Bonz GmbH Germany Willy Rusch AG 100 Astraflex BVBA Belgium TFX Group Ltd. 99 (4) Astraflex Limited UK TFX Group Ltd. 100 Aunic Engineering Limited UK Sermatech (U.K.) Limited 100 Aviation Product Support, Inc. Delaware TFX Equities 100 Bavaria Cargo Technologie GmbH Germany Telair International GmbH 100 Blue Armor International, Ltd. Maryland Sermatech 100 Capro de Mexico, S.A. de C.V. Mexico TFX International Corp. 99.99 (5) Capro Inc. Texas Teleflex 100 CCT De'Couper Industries, Inc. Michigan Comcorp Technologies, Inc. 100 CCT Plymouth Stamping Company Michigan Comcorp Technologies, Inc. 100 CCT Thomas Die & Stamping, Inc. Michigan CCT De'Couper Industries, Inc. 100 Century Aero Products International, Inc. California Telair International Inc. (CA) 100 Cepco Precision Company of Canada, Inc. Canada Sermatech Engineering 100 Cetrek Engineering Ltd. UK Cetrek Ltd. 100 Cetrek Inc. Massachusetts Teleflex 100 Cetrek Limited UK TFX International Ltd. 100 Chemtronics International Ltd. UK Sermatech (U.K.) Limited 100 Claes Johansson Automotive AB Sweden UPDC Systems AB 100 Claes Johansson Components AB Sweden Claes Johansson Automotive AB 100 Comcorp Inc. Michigan Teleflex 100 Comcorp Technologies, Inc. Michigan Teleflex 100 Comfort Pedals, Inc. Michigan Comcorp, Inc. 100 Compart Automotive B.V. The Netherlands United Parts Group N.V. 100 Endoscopy Specialists Incorporated Delaware Medical Sterilization, Inc. 100 Entech, Inc. New Jersey TFX Equities 100 Franklin Medical Ltd. UK TFX Group Ltd. 100 G-Tel Aviation Limited UK Sermatech (U.K.) Limited 50 Gamut Technology, Inc. Texas Capro 100 Gas-Path Technology, Inc. Delaware Teleflex 100 Gator-Gard Incorporated Delaware Sermatech 100 GFI Control Systems, Inc. Ontario 924593 Ontario 50 Inmed (Malaysia) Holdings Sdn. Berhad Malaysia Willy Rusch AG 100 Inmed Acquisition, Inc. Delaware Teleflex 100 (6) Inmed Corporation (7) Georgia Inmed Acquisition 100 Inmed Corporation (U.K.) Ltd. UK TFX Group Ltd. 100 Kaufman Industries Limited Maryland Sermatech 100 Kordial S.A. France TFX International S.A. 100 Lehr Precision, Inc. Ohio Teleflex 100 Lipac Liebinzeller Verpackungs-GmbH Germany Willy Rusch AG 100 Mal Tool & Engineering Limited UK TFX Group Ltd. 100 Meddig Medizintechnik Vertriebs-GmbH Germany Rusch G B 87.5 Medical Service Vertriebs-GmbH Germany Willy Rusch AG 100 Norland Plastics Company Delaware TFX Equities 100 Phosphor Products Co. Limited UK TFX International Ltd. 100 Pilling Weck Chiurgische Produkte GmbH Germany TFX Holding GmbH 100 Pilling Weck Incorporated Delaware Teleflex 100 Pilling Weck Incorporated Pennsylvania Teleflex 100 Pilling Weck (Asia) PTE Ltd. (8) Singapore Pilling Weck (PA) 99.99 Pilling Weck (Canada) Inc. Canada 924593 Ontario 50.5 (9) Pilling Weck n.v. Belgium TFX International S.A. 100 Primaklimat AB Sweden Claes Johansson Components AB 100 Rigel Compasses Limited UK TFX International Ltd. 100 Rusch Asia Pacific Sdn. Berhad Malaysia Inmed (Malaysia) Holdings 100 Rusch AVT Medical Private Limited India TFX Equities 50 Rusch (UK) Ltd. UK TFX Group Ltd. 100 Rusch Austria Ges.mbH Austria Teleflex Holding GmbH (Austria) 100
Page 1 2 EXHIBIT 21 TELEFLEX INCORPORATED SUBSIDIARIES
SUBSIDIARY JURISDICTION PARENT PERCENTAGE OF INCORPORATION Rusch France S.A.R.L. France Rusch G B 100 Rusch Inc. Delaware Rusch G B 100 Rusch Italia S.A.R.L. Italy Willy Rusch AG 100 Rusch Manufacturing (UK) Ltd. UK TFX Group Ltd. 100 Rusch Manufacturing Sdn. Berhad Malaysia Inmed (Malaysia) Holdings 96.5 Rusch Medical, S.A. (10) France TFX International S.A. 100 Rusch Mexico, S.A. de C.V. Mexico Teleflex 99 (11) Rusch Sdn. Berhad Malaysia Inmed (Malaysia) Holdings 96.5 Rusch Uruguay Ltda. Uruguay Rusch G B 60 Rusch-Pilling Limited Canada Willy Rusch AG 50.5 (12) Rusch-Pilling S.A. France TFX International S.A. 100 S. Asferg Hospitalsartikler ApS Denmark Teleflex 100 Scandinavian Bellyloading Company AB Sweden Telair International GmbH 100 Scandinavian Bellyloading Internat'l, Inc. California Teleflex 100 Sermatech (Canada) Inc. Canada 924593 Ontario 100 Sermatech Engineering Group, Inc. Delaware Teleflex 100 Sermatech Gas-Path (Asia) Ltd. Thailand Sermatech 100 Sermatech (Germany) GmbH Germany TFX Holding GmbH 00 Sermatech International Incorporated Pennsylvania Teleflex 00 Sermatech-Mal Tool SARL France TFX International S.A. 100 (13) Sermatech Repair Services Limited UK Airfoil Technologies Internat'l 60 (14) Sermatech-Tourolle S.A. France TFX International S.A. 100 Sermatech (U.K.) Limited UK TFX Group Ltd. 100 SermeTel Technical Services (STS) GmbH Germany TFX Holding GmbH 00 Simal S.A. Belgium TFX International S.A. 100 SSI Surgical Services, Inc. Delaware Medical Sterilization, Inc. 100 SSI Surgical Services, Inc. (15) New York TFX Equities 85 Technology Holding Company Delaware TFX Equities 100 Technology Holding Company II Delaware Technology Holding Company III 100 Technology Holding Company III Delaware Techsonic Industries, Inc. 66 (16) Techsonic Industries, Inc. Alabama Teleflex 100 Telair International GmbH Germany TFX Holding GmbH 100 Telair International Incorporated (17) California Teleflex 100 Telair International Incorporated Delaware Teleflex 100 Telair International Services GmbH (18) Germany Bavaria Cargo Technologie 100 Telair International Services PTE LTD Singapore Telair 70.5 (19) Teleflex (Canada) Limited Canada(B.C.) 924593 Ontario 100 Teleflex Automotive de Mexico S.A. de C.V. Mexico TFX Equities 99.9 (20) Teleflex Automotive Manufacturing Corporation Delaware Teleflex 100 Teleflex Control Systems, Inc. Pennsylvania Teleflex 100 Teleflex Fluid Systems, Inc. Connecticut Teleflex 100 Teleflex Holding GmbH (Austria) Austria Teleflex Incorporated 59 (21) Teleflex Machine Products, Inc. Delaware Teleflex Fluid 100 TFX Automotive LTD (22) UK TFX Group Ltd. 100 TFX Engineering Ltd. Bermuda Teleflex Holding GmbH (Austria) 100 TFX Equities Incorporated Delaware Teleflex 100 TFX Financial Services (UK) UK TFX Engineering Ltd. (Bermuda) 100 TFX Foreign Sales Corporation Barbados TFX International Corp. 100 TFX Group Limited UK Teleflex Holding GmbH (Austria) 100 TFX Holding GmbH Germany Teleflex Holding GmbH (Austria) 100 TFX International Corporation Delaware Teleflex 100 TFX International Limited UK TFX Group Ltd. 100 TFX International S. A. France Teleflex 100 TFX Marine Incorporated Delaware Teleflex 100 TFX Medical Incorporated Delaware Teleflex 100 TFX Medical Wire Products, Inc. Delaware TFX Equities 100 TFX Scandinavia AB (23) Sweden Teleflex 100 The ISPA Company Maryland Sermatech 100 Top Surgical GmbH Germany PW Chiurgische Produkte GmbH 100 United Parts Automotive Engineering GmbH Germany UPDC Systems (Holding) GmbH 100 United Parts Driver's Control Systems AB Sweden United Parts Group N.V. 100 United Parts Driver Control Systems B.V. The Netherlands United Parts Group N.V. 100 United Parts Driver Control Systems (UK) Ltd. UK TFX Group Ltd. 100 United Parts Driver Control Systems (Holding) GmbH Germany United Parts Group N.V. 94 (24) United Parts de Mexico SA de CV Mexico United Parts Group N.V. 99.998 (25)
Page 2 3 EXHIBIT 21 TELEFLEX INCORPORATED SUBSIDIARIES
SUBSIDIARY JURISDICTION PARENT PERCENTAGE OF INCORPORATION United Parts France S.A. France TFX International S.A. 100 United Parts Group N.V. The Netherlands TFX Holding GmbH 100 United Parts FHS Automobile Systeme GmbH Germany UPDC Systems (Holding) GmbH 99.9 (26) United Parts s.a. France TFX International S.A. 100 United Parts Slovakia sro Slovakia UPDC Systems BV 100 Victor Huber GmbH Germany Teleflex 100 Weck Closure Systems LLC Delaware Pilling Weck Incorporated (DE) 100 Willy Rusch AG Germany TFX Holding GmbH 100 Willy Rusch Grundstucks und Beteiligungs AG + Co KG ("Rusch G B") Germany Willy Rusch AG 99.8 (27)
1. 14% owned by Sermatech and 5% owned by Pilling Weck (PA). 2. 49% owned by Sermatech International Incorporated. 3. 49% owned by General Electric Company. 4. 1% owned by Teleflex Fluid Systems, Inc. 5. One share (.002%) is owned by TFX Equities. 6. Except for nominee shares. 7. Trades under name "Rusch Inc." 8. Formerly Rusch-Pilling (Asia) PTE LTD. 9. 49.5% owned by Rusch G B. 10. Formerly Europe Medical, S.A. 11. 1% owned by Rusch Inc. 12. 49.5% owned by 924593 Ontario. 13. Formerly Mal Tool & Engineering SARL. 14. 40% owned by TFX Equities. 15. Formerly Medical Sterilization, Inc. 16. 34% owned by ten other subsidiary companies. 17. Formerly The Talley Corporation. Trades under name "Teleflex Control Systems." 18. Formerly Telair Cargo Electronic Systems GmbH. 19. 29.5% owned by TPA PTE LTD & Mr. Chan. 20. One share (.001%) is owned by TFX International Corporation. 21. 16% owned by TFX International Corporation, 9% by Inmed Corporation, 7% by TFX Equities Incorporated, 6% by Telair International Incorporated (DE), and 3% by Sermatech International Incorporated. 22. Formerly S.J. Clark (Cables) Limited. Trades under name "Clarks Cables". 23. Formerly TX Controls AB. 24. 6% owned by Compart Automotive B.V. 25. 0.002% owned by Compart Automotive B.V. 26. 0.1% owned by Arminium Treuhand. 27. Two shares (.2%) are owned by Inmed Corporation. Page 3 EX-24 4 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY Each of the undersigned Directors of Teleflex Incorporated, a Delaware corporation (the "Company"), hereby appoints Lennox K. Black, Harold L. Zuber, Jr. and Steven K. Chance, and each of them, with full power of substitution, to act as his attorney-in-fact to execute, on behalf of the undersigned, the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1999. IN WITNESS WHEREOF, this Power of Attorney is executed this 31st day of January, 2000. /s/ Patricia Barron /s/ L. K. Black - ----------------------------------- ---------------------------------- Patricia Barron Lennox K. Black /s/ David S. Boyer /s/ Donald Beckman - ----------------------------------- ---------------------------------- David S. Boyer Donald Beckman /s/ William R. Cook /s/ Joseph S. Gonnella - ----------------------------------- ---------------------------------- William R. Cook Joseph S. Gonnella /s/ Pemberton Hutchinson /s/ Sigismundus W. W. Lubsen - ----------------------------------- ---------------------------------- Pemberton Hutchinson Sigismundus W. W. Lubsen /s/ Palmer E. Retzlaff /s/ James W. Stratton - ----------------------------------- ---------------------------------- Palmer E. Retzlaff James W. Stratton EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-26-1999 DEC-28-1998 DEC-26-1999 29,040 0 324,629 0 227,486 604,940 766,473 300,572 1,263,444 329,412 246,191 0 0 38,019 564,545 1,263,444 1,601,069 1,601,069 1,155,879 1,155,879 284,702 0 17,732 142,756 47,536 95,220 0 0 0 95,220 2.47 2.47
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