REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To Danaher Corporation:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in pages 7 to 23 of
the Danaher Corporation and Subsidiaries' Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 26, 1996. Our audit was
made for the purpose of forming an opinion on those statements
taken as a whole. The schedules listed in the index are the
responsibility of the Company's management and are presented for
the purpose of complying with the Securities and Exchange
Commission's rules and are not a part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 26, 1996
<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(000's omitted)
Additions
Write
Balance Charged Offs,
Classification at to Charged Write Balance
Beginning Costs to Downs at End
of & other & of
Period Expenses Accounts Deductions Period
Year Ended December 31, 1995
Allowances deducted
from asset accounts:
Allowance for 4,148
doubtful accounts $ 11,638 $ 4,847 $ 2,961 (a) $ 1,867 (b) $13,431
Year Ended December 31, 1994
Allowances deducted
from asset accounts:
Allowance for
doubtful accounts $ 8,043 $ 6,630 $ 487 (a) $ 3,522 $ 11,638
Year Ended December 31, 1993
Allowances deducted
from asset accounts:
Allowance for
doubtful accounts $ 6,350 $ 4,188 $ -- $ 2,495 $ 8,043
Notes: (a) - Amounts related to businesses acquired.
(b) - Amounts related to businesses disposed of.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of
Directors of Danaher Corporation:
We have audited the accompanying consolidated balance sheets
of Danaher Corporation (a Delaware corporation) and Subsidiaries
as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995.
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 in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform an 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. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Danaher Corporation and Subsidiaries as of December 31, 1995
and 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
As explained in Notes 1 and 7 to the financial statements,
effective January 1, 1993, the Company changed its methods of
accounting for income taxes and post retirement benefits other
than pensions.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 26, 1996
<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except per share data)
Year Ended December 31,
1995 1994 1993
Net revenues.. . . $1,486,769 $1,113,973 $937,633
Cost of sales.. . . 1,039,622 791,874 678,577
Selling, general and
administrative expenses. 266,890 197,672 171,998
Total operating expenses 1,306,512 989,546 850,575
Operating profit. . . 180,257 124,427 87,058
Interest expense. . . . 7,198 3,201 5,361
Earnings from continuing
operations before income
taxes and cumulative effect
of accounting change. .. . 173,059 121,226 81,697
Income taxes. .. . . . . . 67,293 48,907 33,667
Earnings from continuing
operations before cumulative
effect of accounting
change. . . . . . . . . . . 105,766 72,319 48,030
Earnings from discontinued
operations, net of income
taxes of $1,630, $5,966 and
$3,673 . . . . . . . . . . 2,550 9,331 5,719
Earnings before cumulative
effect of accounting
change . . . . . . . . . . . 108,316 81,650 53,749
Cumulative effect of
accounting change, net of
tax benefit of $20,000 . . - - (36,000)
Net earnings. . . . . . . $108,316 $81,650 $17,749
Per share:
Continuing operations. . $1.77 $1.24 $ .83
Discontinued operations . .04 .16 .10
Before accounting change 1.81 1.40 .93
Cumulative effect of
accounting change. . . - - (.62)
Net earnings . . . . . $1.81 $ 1.40 $ .31
Average common stock and
common equivalent
shares outstanding. . . 59,862,673 58,326,572 57,793,672
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
As of December 31,
1995 1994
ASSETS
Current assets:
Cash and equivalents. . . . . . . $ 7,938 $ 3,599
Trade accounts receivable,
less allowance for doubtful
accounts of $13,431 and $9,771 . . 224,652 168,159
Inventories. . . . . . . . . . . . 201,890 134,941
Prepaid expenses and other. . . . 31,990 50,671
Total current assets .. . . . 466,470 357,370
Property, plant and equipment, net. . 291,937 244,167
Other assets . . . . . . . . . . . . 119,444 72,609
Excess of cost over net assets of
acquired companies, less
amortization of $72,125 and $57,643 . 608,140 431,499
$1,485,991 $1,105,645
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
portion of debt . . . . . . . . . . $14,970 $68,771
Trade accounts payable. . . . . . . 92,290 78,109
Accrued expenses. . . . . . . . . . 296,878 228,507
Total current liabilities. . . . . 404,138 375,387
Other liabilities. . . . . . . . . 226,925 137,643
Long-term debt .. . . . . . . . . . 268,617 116,515
Stockholders' equity:
Common stock, one cent par value;
125,000,000 shares authorized;
63,406,214 and 63,198,208 issued;
58,503,008 and 58,295,002
outstanding.. . . . . . . . . . . 634 632
Additional paid-in capital. . . . . 315,205 311,648
Cumulative foreign translation
adjustment. . . . . . . . . . . . 3,598 590
Retained earnings. . . . . . . . . 304,363 200,719
Treasury stock, at cost;
4,903,206 shares. . . . . . . . (37,489) (37,489)
Total stockholders' equity. . . . . 586,311 476,100
$1,485,991 $1,105,645
The accompanying Notes to Consolidated Financial Statements are an
integral part of these balance sheets.
<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Year Ended December 31, 1995 1994 1993
Cash flows from operating activities:
Earnings from continuing operations $105,766 $72,319 $ 48,030
Earnings from discontinued operations 2,550 9,331 5,719
Depreciation and amortization. . . . 58,527 42,554 38,397
(Increase) decrease in accounts
receivable. . . . .. . . . . . . . (20,098) (15,786) 637
(Increase) decrease in inventories . . (15,589) (938) 6,946
Increase (decrease) in accounts
payable. . . . . . . . . . . . . . 626 8,712 (224)
Change in other assets and
liabilities. . . . . . . . . . 42,374 24,162 29,187
Total operating cash flows. . . . . 174,156 140,354 128,692
Cash flows from investing activities:
Payments for additions to property,
plant and equipment, net (59,172) (34,811) (33,375)
Cash acquired in acquisition . . . . . 22,784 - -
Investments in equity securities. .. . - (22,032) -
Cash paid for acquisition ... . . . . (230,725) (136,055) (53,960)
Net cash used in investing
activities . . . . . . . . . . . (267,113) (192,898) (87,335)
Cash flows from financing activities:
Proceeds from issuance of
common stock. . . . . . . . . . . . 3,559 992 1,301
Dividends paid . . . . . . . . . . (4,672) (3,420) (2,559)
Borrowings (repayments) of debt. . . 98,301 51,701 (65,183)
Proceeds from notes payable. . . . . - - 30,000
Net cash provided by (used in)
financing activities. . . . . . . 97,188 49,273 (36,441)
Effect of exchange rate changes on
cash. .. . . . . . . . . . . . . . 108 269 (6)
Net change in cash and equivalents. 4,339 (3,002) 4,910
Beginning balance of cash and
equivalents. . . . . . . . . . . 3,599 6,601 1,691
Ending balance of cash and
equivalents . . . . . . . . . . . $ 7,938 $ 3,599 $ 6,601
Supplemental disclosures:
Cash interest payments. . . . $ 13,699 $ 9,505 $10,677
Cash income tax payments .. . $ 69,853 $65,837 $37,331
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands of dollars)
Additional
Common Stock Paid-In
Shares Amount Capital
Balance, January 1, 1993 61,700,016 $308 $278,232
Net earnings for the
year. . . . . . . . . - - -
Dividends declared. . . - - -
Common stock issued for
options exercised. . . 100,312 1 1,300
Decrease from translation
of foreign financial
statements. . .. . . . - - -
Balance, December 31, 1993. 61,800,328 309 279,532
Net earnings for the year.. - - -
Dividends declared. . . . - - -
Common stock issued for
options exercised. . . . 58,774 - 992
Common stock issued for
acquisitions . . . . . . 1,339,106 7 31,124
Two-for-one common stock
split . . . . . . . . . . - 316 -
Increase from translation
of foreign financial
statements. . . . . . . . - - -
Balance, December 31, 1994 63,198,208 632 311,648
Net earnings for the year. - - -
Dividends declared. . . . - - -
Common stock issued for
options exercised.. . . . 208,006 2 3,557
Increase from translation
of foreign financial
statements. . . . . . . . - - -
Balance, December 31, 1995 63,406,214 $ 634 $ 315,205
CONTINUED
<PAGE>
Cumulative
Foreign
Retained Treasury Translation
Earnings Stock Adjustment
Balance, January 1, 1993 . $108,758 $(37,489) $(1,430)
Net earnings for the year. 17,749 - -
Dividends declared. .. . (3,412) - -
Common stock issued for
options exercised. . . . - - -
Decrease from translation
of foreign financial
statements. . . . . . . - - (351)
Balance, December 31, 1993. 123,095 (37,489) (1,781)
Net earnings for the year. . 81,650 - -
Dividends declared. . . .. . (3,710) - -
Common stock issued for
options exercised. . . . . - - -
Common stock issued for
acquisitions . . . . . . . - - -
Two-for-one common stock split. (316)
Increase from translation of
foreign financial
statements. . . . . . . . . . - - 2,371
Balance, December 31, 1994 200,719 (37,489) 590
Net earnings for the year. . 108,316 - -
Dividends declared. . . . . . (4,672) - -
Common stock issued for
options exercised.. . . . . - - -
Increase from translation of
foreign financial
statements. . . . . . . . . - - 3,008
Balance, December 31, 1995 $ 304,363 $ (37,489) $ 3,598
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
(1) Summary of Significant Accounting Policies:
Accounting Principles - The consolidated financial
statements include the accounts of the Company and its
subsidiaries. The accounts of certain of the Company's foreign
subsidiaries are included on the basis of a fiscal year ending
November 30. This procedure was adopted to allow sufficient time
to include these companies in the consolidated financial
statements. All significant intercompany balances and
transactions have been eliminated upon consolidation. Preparation
of these consolidated financial statements necessarily includes
the use of management's estimates.
Inventory Valuation - Inventories include material, labor
and overhead and are stated principally at the lower of cost or
market using the last-in, first-out method (LIFO).
Property, Plant and Equipment - Property, plant and
equipment are carried at cost. The provision for depreciation has
been computed principally by the straight-line method based on the
estimated useful lives (3 to 35 years) of the depreciable assets.
Other Assets - Other assets include principally deferred
income taxes, equity securities, noncurrent trade receivables and
capitalized costs associated with obtaining financings which are
being amortized over the term of the related debt. The equity
securities of Joslyn Corporation (see Note 2) are carried at cost,
which approximates market, at December 31, 1994. No gains or
losses were reflected in any of the years presented.
Post Retirement Benefits - As of January 1, 1993, the
Company changed its method of accounting for post retirement
benefits from recognizing expense as claims are paid to the
accrual method specified by SFAS No. 106. The Company elected to
recognize this liability immediately and its adoption is not
expected to significantly impact the Company's ongoing results of
operations. This change is reflected net of its tax benefit as
the cumulative effect of accounting change in the accompanying
Consolidated Statements of Earnings.
Fair Value of Financial Instruments - For cash and
equivalents, the carrying amount is a reasonable estimate of fair
value. For long-term debt, rates available for debt with similar
terms and remaining maturities are used to estimate the fair value
of existing debt.
Excess of Cost Over Net Assets of Acquired Companies - This
asset is being amortized on a straight-line basis over forty
years. $ 14,482,000, $ 9,765,000, and $9,427,000 of amortization
was charged to expense for the years ended December 31, 1995,
1994, and 1993, respectively.
Foreign Currency Translation - Exchange adjustments
resulting from foreign currency transactions are generally
recognized in net earnings, whereas adjustments resulting from the
translation of financial statements are reflected as a separate
component of stockholders' equity. Net foreign currency
transaction gains or losses are not material in any of the years
presented.
Statements of Cash Flows - The Company considers all highly
liquid investments with a maturity of three months or less at date
of purchase to be cash equivalents.
Income Taxes - The Company provides income taxes for
unremitted earnings of foreign subsidiaries which are not
considered permanently reinvested in that operation. As of
January 1, 1993, the Company adopted the liability method of
accounting for income taxes specified by SFAS No. 109. Its
adoption had no impact on the results of operations and resulted
in certain reclassifications to the Company's balance sheet.
Earnings Per Share - The computation of earnings per share
is based on the weighted average number of common shares and
common stock equivalents outstanding during the year.
Discontinued Operations - In December, 1995, an agreement
was executed to sell the Fayette Tubular Products subsidiary for
approximately $155 million. The Company no longer operates in the
Transportation business segment, and hence prior periods have been
restated to reflect Fayette as a discontinued operation. A gain
of approximately $80 million will be recognized in the first
quarter of 1996. Net revenues for Fayette were $155 million in
1995, $175 million in 1994, and $138 million in 1993. Net assets
reflected in prepaid expenses and other and in other assets were
$48 million as of December 31, 1995 and 1994.
(2) Acquisitions:
The Company obtained control of Joslyn Corporation (Joslyn)
as of September 1, 1995 when Joslyn's shareholders tendered
approximately 75% of the outstanding shares to Danaher for $34 per
share in cash. The remaining 25% was acquired in October, 1995.
Total consideration for Joslyn was approximately $245 million.
The fair value of assets acquired was approximately $ 345 million
and approximately $100 million of liabilities were assumed. The
transaction was accounted for as a step acquisition purchase.
Results of operations reflect a minority interest elimination for
the two-month period between the change in control and the merger
of Joslyn. The purchase price allocations have been completed on
a preliminary basis, subject to adjustment should new or
additional facts about the businesses become known.
The unaudited pro forma information for the periods set
forth below give effect to the transaction as if it had occurred
at the beginning of each period. The pro forma information is
presented for informational purposes only and is not necessarily
indicative of the results of operations that actually would have
been achieved had the acquisition been consummated as of that
time. Joslyn's $35 million ($21 million after tax benefit or $.36
per share) provision for environmental remediation associated with
sites previously owned by Joslyn is reflected in the 1994 amount
(unaudited, 000's omitted):
Year Ended
December 31, December 31,
1995 1994
Net Sales $1,640,554 $1,330,150
Net Earnings 109,919 59,696
Earnings per share $ 1.84 $ 1.02
In 1994, the Company acquired Delta Consolidated Industries,
Hengstler GmbH, Armstrong Brothers Tool Company and several
smaller entities. Aggregate consideration for these transactions
was approximately $167 million, consisting of $136 million in cash
and $31 million in common stock. The fair value of the assets
acquired was approximately $240 million and approximately $73
million of liabilities were assumed in these acquisitions. The
transactions have been accounted for as purchases. These
acquisitions had no significant impact on 1994 results of
operations as the larger acquisitions were not completed until the
fourth quarter. These entities have combined annual sales levels
of approximately $220 million.
In 1993, the Company acquired certain businesses for its
process/environmental controls segment. Annual sales levels of
the acquired businesses are approximately $65 million. The
transactions have been accounted for as purchases.
(3) Inventory:
The major classes of inventory are summarized as follows
(000's omitted):
December 31, 1995 December 31, 1994
Finished goods. . . $ 89,932 $ 69,232
Work in process. . . 51,904 31,799
Raw material .. . 60,054 33,910
$ 201,890 $ 134,941
If the first-in, first-out (FIFO) method had been used for
inventories valued at LIFO cost, such inventories would have been
$12,167,000 and $12,096,000 higher at December 31, 1995 and 1994,
respectively.
(4) Property, Plant and Equipment:
The major classes of property, plant and equipment are
summarized as follows (000's omitted):
December 31, 1995 December 31, 1994
Land and improvements . . $ 15,015 $ 9,309
Buildings . . . . . . . . 93,312 76,920
Machinery and equipment.. 352,176 291,675
460,503 377,904
Less accumulated
depreciation... . . . . (168,566) (133,737)
Property, plant and
equipment. . . . . . .. $291,937 $244,167
<PAGE>
(5) Financing:
Financing consists of the following (000's omitted):
December 31, 1995 December 31, 1994
Notes payable . . . . . . $115,300 $ 130,000
Bank credit facility. . . - -
Other . . . . . . . . . . 168,287 55,286
283,587 185,286
Less-currently payable. . 14,970 68,771
$ 268,617 $ 116,515
The Notes had an original average life of approximately 6.5
years and an average interest cost of 7.2%. Principal
amortization began in December 1995 and continues through April
2003. The estimated fair value of the Notes is $120 million and
$123 million as of December 31, 1995 and 1994.
Other includes principally short-term borrowings under
uncommitted lines of credit which are payable upon demand. The
carrying amount approximates fair value. Substantially all other
debt was repaid subsequent to year-end with the $155 million
proceeds from the sale of Fayette Tubular Products.
The Company's bank credit facility provides for revolving
credit through November 1, 2000, of up to $250 million. The
Company has complied with covenants relating to maintenance of
working capital, net worth, debt levels, interest coverage, and
payment of dividends applicable to the notes and the revolving
credit facility. The facility provides funds for general
corporate purposes at an interest rate of LIBOR plus .1875%. The
weighted average interest rate for variable rate debt was 6.0%,
5.1%, and 3.8% for each of the three years ended December 31,
1995. Weighted average borrowings under the bank facility were
$5,000,000, $2,986,000, and $48,886,000 for the years ended
December 31, 1995, 1994 and 1993. Maximum amounts outstanding for
these years were $60,000,000, $33,525,000, and $79,000,000
respectively. The Company is charged a fee of .1% per annum for
the facility. Commitment and facility fees of $216,000, $258,000,
and $521,000 were incurred in 1995, 1994 and 1993. Interest
expense of $7,150,000, $6,112,000 and $4,984,000 is included in
discontinued operations for the years ended December 31, 1995,
1994 and 1993.
The minimum principal payments during the next five years
are as follows: 1996 - $14,970,000; 1997 - $14,847,000; 1998 -
$14,835,000; 1999 - $41,335,000; 2000 - $167,060,000 and
$30,540,000 thereafter.
<PAGE>
(6) Accrued Expenses and Other Liabilities:
Selected accrued expenses and other liabilities include the
following (000's omitted):
December 31, 1995 December 31, 1994
Employee compensation .. $60,655 $39,831
Insurance including
self insurance . .. . 49,961 40,797
Post retirement benefits.. 76,844 60,897
Environmental compliance.. 88,212 11,570
Approximately $23 million of accrued expenses and other
liabilities were guaranteed by bank letters of credit.
(7) Pension and Employee Benefit Plans:
The Company has noncontributory defined benefit pension
plans which cover certain of its domestic hourly employees.
Benefit accruals under most of these plans have ceased as of
December 31, 1995. It is the Company's policy to fund, at a
minimum, amounts required by the Internal Revenue Service. Net
periodic pension cost included the following components:
PENSION EXPENSE(000's omitted)
1995 1994 1993
Service cost-benefits earned
during the period. . . . $ 181 $1,209 $1,079
Interest cost on projected
benefit obligation. . . . 7,330 5,633 5,947
Actual (return) loss on plan
assets . .. . . . . . . . (20,175) 690 (9,079)
Net amortization and
deferrals. . . . . . . . 12,866 (7,119) 2,901
Net periodic pension cost. $ 202 $ 413 $ 848
<PAGE>
The following sets forth the funded status of the plans as
of the most recent actuarial valuations (000's omitted):
1995
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Asets
Actuarial present value
of benefit obligations:
Vested benefit obligation. $(58,595) (57,042)
Accumulated benefit
obligation. . . . . . . (59,516) (59,649)
Projected benefit
obligation. . . . . . . (59,516) (59,649)
Fair value of plan assets
(consisting of stocks,
bonds and temporary cash
investments). .. . . . 72,969 56,240
Projected benefit obligation
(in excess of) or less than
plan assets. . . . 13,453 (3,409)
Unrecognized net (gain) loss. (4,120) 2,919
Unrecognized prior service
cost. . . . . . . . . . - -
Unrecognized net asset . . . (605) (1,269)
Pension (liability) prepaid
recognized in the balance
sheet. . . . . . . . . $ 8,728 $(1,759)
1994
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
Actuarial present value
of benefit obligations:
Vested benefit obligation. $(15,459) $(56,480)
Accumulated benefit
obligation. . . . . . . (15,696) (56,966)
Projected benefit
obligation. . . . . . . (15,696) (56,966)
Fair value of plan assets
(consisting of stocks,
bonds and temporary cash
investments). .. . . . . 16,781 53,776
Projected benefit obligation
(in excess of) or less than
plan assets. . . . . . 1,085 (3,190)
Unrecognized net (gain) loss. 800 1,243
Unrecognized prior service
cost. . . . . . . . . 640 1,019
Unrecognized net asset . . . . (975) (1,218)
Pension (liability) prepaid
recognized in the balance
sheet. . . . . . . . . . . $1,550 $(2,146)
The expected long-term rate of return on plan assets was 10%. The
discount rates used in determining pension cost and benefit
obligations was 8.5% at January 1, 1995 and 7.5% at December 31,
1995.
Substantially all employees not covered by defined benefit
plans are covered by defined contribution plans which generally
provide funding based on a percentage of compensation.
Pension expense for all plans amounted to $11,870,000,
$8,677,000, and $8,023,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
In addition to providing pension benefits, the Company
provides certain healthcare and life insurance benefits for some
of its retired employees. Certain employees may become eligible
for these benefits as they reach normal retirement age while
working for the Company.
Post retirement benefits cost included the following
components (000's omitted):
1995 1994 1993
Service cost . . .. $ 298 $ 256 $ 222
Interest cost . .. . . 4,734 3,995 4,566
$5,032 $ 4,251 $ 4,788
The following sets forth the program's funded status (000's
omitted):
December 31, 1995 December 31, 1994
Accumulated Post
Retirement Benefit
Obligation (APBO):
Retirees. . . . . . . $52,788 $40,419
Fully eligible active
participants. . . . . 10,840 6,733
Other active
participants. . . . . 11,265 4,205
Total APBO 74,893 51,357
Net Gains 1,951 9,540
Plan assets - -
Accrued Liability $76,844 $60,897
A 10% annual rate of increase in per capita costs of covered
healthcare benefits was assumed for 1996, decreasing to 6% by
2002. A 1% increase in the assumed cost trend assumption would
increase the APBO by $8 million and would have increased 1995
costs by approximately $500,000. A discount rate of 8.5% was used
as of January 1, 1995. A discount rate of 7.5% was used to
determine the APBO as of December 31, 1995.
(8) Stock Transactions:
The Company has adopted a non-qualified stock option plan
for which it is authorized to grant options to purchase up to
3,600,000 shares. Under the plan, options are granted at not less
than 85% of existing market prices and expire ten years from the
date of grant. An option to acquire 1,000,000 shares was granted
to a senior executive outside of the plan in 1990.
Changes in stock options were as follows:
Number of Shares Under Option
Outstanding at January 1,1993 2,165,176
Granted (average $16.40 per share) 1,072,200
Exercised (average $7.23 per share) (100,312)
Cancelled (91,688)
Outstanding at December 31, 1993 3,045,376
Granted (average $23.06 per share) 456,100
Exercised (average $8.38 per share) (58,774)
Cancelled (41,600)
Outstanding at December 31, 1994 3,401,102
Granted (average $30.71 per share) 383,300
Exercised (average $9.54 per share (208,006)
Cancelled (136,520)
Outstanding at December 31, 1995 3,439,876
As of December 31, 1995, options covering 2,075,576 shares
are exercisable at $5.94 to $31.00 per share.
(9) Leases and Commitments:
The Company's leases extend for varying periods of time up
to 10 years and, in some cases, contain renewal options. Future
minimum rental payments for all operating leases having initial or
remaining noncancelable lease terms in excess of one year are
$12,037,000 in 1996, $7,709,000 in 1997, $5,587,000 in 1998,
$3,569,000 in 1999, and $1,978,000 in 2000. Total rent expense
charged to income for all operating leases was $16,067,000,
$8,947,000, and $10,047,000 for the years ended December 31, 1995,
1994, and 1993, respectively.
(10) Litigation and Contingencies:
A former subsidiary of the Company is engaged in litigation
in multiple states with respect to product liability. The Company
sold the subsidiary in 1987. Under the terms of the sale
agreement, the Company agreed to indemnify the buyer of the
subsidiary for product liability related to tools manufactured by
the subsidiary prior to June 4, 1987. The cases involve
approximately 3,000 plaintiffs, in state and federal courts in
multiple states. All other major U.S. air tool manufacturers are
also defendants. The gravamen of these complaints is that the
defendants' air tools, when used in different types of
manufacturing environments over extended periods of time, were
defective in design and caused various physical injuries. The
plaintiffs seek compensatory and punitive damages. The cases are
in preliminary stages of discovery and pleading and the Company
intends to defend its position vigorously. The Company's maximum
indemnification obligation under the contract is approximately
$85,000,000. The Company believes it has insurance coverage for
all or a substantial part of the damages, if any. The outcome of
this litigation is not currently predictable.
A subsidiary, Joslyn Manufacturing Company (JMC), previously
operated wood treating facilities that chemically preserved
utility poles, pilings and railroad ties. All such treating
operations were discontinued or sold prior to 1982. These
facilities used wood preservatives that included creosote,
pentachlorophenol and chromium-arsenic-copper. While
preservatives were handled in accordance with all appropriate
procedures called for at the time, subsequent changes in
environmental laws may require the generators of these spent
preservatives to be responsible for the cost of remedial actions
at the sites where spent preservatives have been deposited. The
Company is continuing its investigation of these sites and
remediation technologies. The Company has made a provision for
environmental compliance; however, there can be no assurance that
estimates of environmental liabilities will not change.
JMC is a defendant in a class action tort suit. The suit
alleges exposure to chemicals and property devaluation resulting
from wood treating operations previously conducted at a Louisiana
site. Both the size of the class and the damages are uncertain.
The Company has tendered the defense of the suit to its insurance
carrier. The Company believes that it may have adequate insurance
coverage for the litigation; however, because of the above
uncertainties, the Company is unable to determine at this time the
potential liability, if any.
In addition to the litigation noted above, the Company is
from time to time subject to routine litigation incidental to its
business. These lawsuits primarily involve claims for damages
arising out of the use of the Company's products, some of which
include claims for punitive as well as compensatory damages. The
Company is also involved in proceedings with respect to
environmental matters including sites where the Company has been
identified as a potentially responsible party under federal and
state environmental laws and regulations. The Company believes
that the results of the above noted litigation and other pending
legal proceedings will not have a materially adverse effect on the
Company's financial condition.
A subsidiary of the Company has sold, with limited recourse,
certain of its accounts and notes receivable. A provision for
estimated losses as a result of the limited recourse has been
included in accrued expenses. No gain or loss arose from these
transactions.
(11) Income Taxes:
The provision for income taxes for the years ended December
31 consists of the following (000's omitted):
1995 1994 1993
Federal. . . . . . . $56,308 $40,297 $28,367
State and local. . . 6,815 5,400 3,800
Foreign. . . . . . . 4,170 3,210 1,500
$ 67,293 $48,907 $33,667
Income tax expense currently payable was $73,225,000,
$70,865,000, and $46,140,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
Deferred income taxes are reflected in prepaid expenses and
other current assets and in other assets. Deferred tax assets
(the valuation allowances relate to foreign jurisdictions where
operating loss carryforwards exist and for capital loss
carryforwards) consist of the following (000's omitted):
December 31, 1995 1994
Bad debt allowance . . . . . $ 4,681 $ 4,100
Inventories . . . . . . . . . (926) 1,700
Property, plant and equipment .. . (25,395) (20,900)
Post retirement benefits. . . . . 28,405 21,300
Other accruals . . . . . . . . . . 86,727 46,700
All other accounts . . . . . . . (3,840) 1,500
Operating loss carryforwards . . . . 7,000 800
Capital loss carryforwards. . . . . . 0 1,300
Gross deferred tax asset. . . . . . . 96,652 56,500
Valuation allowances. .. . . . . . . (7,000) (2,100)
Net deferred tax asset . . . . . .$ 89,652 $ 54,400
The effective income tax rate for the years ended December
31 varies from the statutory Federal income tax rate as follows:
Percentage of Pre-Tax Earnings
1995 1994 1993
Statutory Federal income tax rate. 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
Permanent differences in
amortization of certain
assets for tax and financial
reporting purposes. .. . . . 2.9 2.8 3.7
State income taxes (net of
Federal income tax benefit). 2.6 2.9 3.0
Taxes on foreign earnings. . (1.6) (0.4) (0.5)
Effective income tax rate.. . . . 38.9% 40.3% 41.2%
(12) Segment Data:
As of December 31, 1995 the Company operated within two
major business segments: Tools and Components, and
Process/Environmental Controls. The Tools and Components segment
has a customer which accounted for approximately 16%, 21% and 21%
of total sales in 1995, 1994 and 1993, respectively. <PAGE>
Operating profit represents total revenues less operating
expenses, excluding interest and taxes on income. The
identifiable assets by segment are those used in each segment's
operations. Intersegment receivables are eliminated to arrive at
consolidated totals.
The detail segment data is presented in the following table
(000's omitted):
Operations in Different Industries -
Year Ended December 31, 1995 1994 1993
Total Revenues:
Tools and Components $1,005,005 $ 809,989 $691,344
Process/Environmental Controls 481,764 303,984 244,400
Other - - 1,889
$1,486,769 $1,113,973 $937,633
Operating Profit:
Tools and Components $ 112,981 $ 81,463 $ 56,443
Process/Environmental Controls 80,804 56,632 42,781
Other (13,528) (13,668) (12,166)
$ 180,257 $ 124,427 $ 87,058
Identifiable Assets:
Tools and Components $ 821,604 $ 687,908 $ 550,169
Process/Environmental Controls 599,466 340,952 240,712
Other 64,921 76,785 51,413
$1,485,991 $1,105,645 $ 842,294
Depreciation and Amortization:
Tools and Components $ 35,211 $ 32,220 $ 29,562
Process/Environmental Controls 23,316 10,334 8,835
$ 58,527 $ 42,554 $ 38,397
Capital Expenditures:
Tools and Components $ 48,500 $ 40,392 $ 28,133
Process/Environmental Controls 10,672 8,348 5,242
Sales of Fixed Assets - (13,929) -
$ 59,172 $ 34,811 $ 33,375
Operations in Geographical Areas -
Year Ended December 31, 1995 1994 1993
Total Revenues:
United States. . . . . . $1,235,933 $1,004,697 $ 854,267
Europe . . . . . . . . . 205,228 77,126 52,195
Other. . . . . . . . . . 45,608 32,150 31,171
$1,486,769 $1,113,973 $ 937,633
Operating Profit:
United States. . . . . . $ 156,170 $ 115,589 $ 81,207
Europe . . . . . . . . . 20,348 7,179 3,568
Other. . . . . . . . . 3,739 1,659 2,283
$ 180,257 $ 124,427 $ 87,058
Identifiable Assets:
United States. .. . . . . $1,292,166 $1,029,825 $ 776,421
Europe . . . . . . . . . 173,949 62,833 51,246
Other. . . . . . . . . . 19,876 12,987 14,627
$1,485,991 $1,105,645 $842,294
Export sales were approximately $107 million, $91 million and $75
million for the years ended December 31, 1995, 1994 and 1993.
(13) Quarterly Data-Unaudited (000's omitted except per share
data)
1995
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net revenues.. . .$335,982 $351,891 $368,724 $430,172
Gross profit. . . 96,707 107,967 111,110 131,363
Operating profit . 36,838 45,709 47,094 50,616
Earnings from
continuing
operations. . . 21,412 26,640 28,348 29,366
Earnings from
discontinued
operations . . . 436 580 452 1,082
Net earnings. . . 21,848 27,220 28,800 30,448
Earnings per share:
Continuing
operations . . .$ .36 $ .45 $ .47 $ .49
Discontinued
operations. . . .01 .01 .01 .02
Net earnings . . .$ .37 $ .45 $ .48 $ .51
1994
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net revenues. . $246,224 $270,418 $284,806 $312,525
Gross profit. .. 67,792 77,892 87,265 89,150
Operating profit. 21,712 27,920 36,720 38,075
Earnings from
continuing
operations . . . 12,200 15,859 21,555 22,705
Earnings from
discontinued
operations . . . 2,328 3,407 1,543 2,053
Net earnings. . . 14,528 19,266 23,098 24,758
Earnings per share:
Continuing
operations . . . $ .21 $ .27 $ .37 $ .39
Discontinued
operations . . . .04 .06 .03 .04
Net earnings . . . $ .25 $ .33 $.40 $ .42
