SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 9, 1998
DANAHER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-8089 59-1995548
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1250 24th Street, N.W. Washington, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 202-828-0850
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition of Assets
As previously reported in the Form 10-Q filed on July 16,
1998, on July 9, 1998, Danaher Corporation acquired Fluke
Corporation in exchange for 17,785,122 shares of Danaher common
stock. The acquisition will be accounted for as a pooling-of-
interests.
Fluke was founded in 1948 and incorporated under the laws of
the State of Washington on October 7, 1953. Fluke is engaged in
the design, manufacture and marketing of compact, professional
electronic test tools. Fluke's principal products are portable
instruments that measure voltage, current, power quality,
frequency, temperature, pressure and other key functional
parameters of electronic equipment. The principal executive
offices of Fluke are located at 6920 Seaway Boulevard, Everett,
Washington 98203, and its telephone number is (425) 347-6100.
The financial statements which follow are for the combined Danaher
and Fluke entities which now represent the historical financial
statements of the Company. They are identical in all respects to the
financial statements filed on September 14,1998 except for the deletion
of the term "supplementary" which was used to describe the previously
filed financial statements.
Item 7. Exhibits
(a)* Attachment 1 contains financial statements of Fluke
Corporation as specified under Rule 3.05(b)
1. Years ended April 24, 1998, April 25, 1997 and
April 26, 1996.
(b)* Attachment 2 contains pro-forma financial statements
and explanatory notes as per Article 11.
(c) Attachment 3 contains management's discussion and analysis
and financial statements for the combined Danaher and Fluke
entities under the pooling-of-interest method for the years
ended December 31, 1997, December 31, 1996 and December 31,
1995
* Previously filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DANAHER CORPORATION
By: /s/ C. Scott Brannan
C. Scott Brannan
Vice President and Controller
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Danaher Corporation (the "Company") operates a variety of businesses
through its wholly-owned subsidiaries. These businesses are conducted in
two business segments: Tools and Components and Process/Environmental
Controls. In Tools and Components, the Company is the principal
manufacturer of Sears, Roebuck and Co.'s Craftsman line, National
Automotive Parts Association (NAPA ) line, K-D automotive line, and the
Matco , Armstrong and Allen lines of mechanics' hand tools. The Company
also manufactures Allen wrenches, Jacobs drill chucks and diesel engine
retarders, Delta storage containers and Coats and Ammco wheel service
equipment. In its Process/Environmental Controls segment, the Company is a
leading producer of compact electronic test tools, leak detection sensors
for underground fuel storage tanks and motion, position, temperature,
pressure, level, flow and power reliability and quality control devices.
Presented below is a summary of sales by business segment (000's
omitted).
1997 1996 1995
Tools and
Components $1,192,761 47.9% $1,103,443 49.4% $1,005,005 52.9%
Process/
Environmental
Controls 1,299,241 52.1% 1,129,750 50.6% 894,458 47.1%
$2,492,002 100.0% $2,233,193 100.0% $1,899,463 100.0%
Tools and Components
The Tools and Components segment is comprised of the Danaher Hand
Tool Group (including Special Markets, Asian Tools and Professional Tools
divisions), Matco Tools, Jacobs Chuck Manufacturing Company, Delta
Consolidated Industries, Jacobs Vehicle Systems, Hennessy Industries and
the hardware and electrical apparatus lines of Joslyn Manufacturing
Company ("JMC"). This segment is one of the largest domestic producers
and distributors of general purpose and specialty mechanics' hand tools.
Other products manufactured by these companies include tool boxes and
storage devices, diesel engine retarders, wheel service equipment, drill
chucks, custom designed headed tools and components, hardware and
components for the power generation and transmission industries, high
quality precision socket screws, fasteners, and high quality miniature
precision parts.
1997 COMPARED TO 1996
Sales in 1997 were 8% higher than in 1996. An acquisition in the
first quarter of 1997 accounted for 3%, price increases provided less
than 1% and higher shipment volume provided 5%. Demand for drill chucks
and diesel engine retarders was particularly strong in 1997. Operating
margins increased from 11.6% to 12.1%, reflecting increased fixed cost
leverage as well as continued process improvements in manufacturing
operations.
1996 COMPARED TO 1995
Sales in this segment increased 10% from 1995. Of this increase,
acquisitions accounted for approximately 5%, higher unit volumes
accounted for approximately 5% and increased average pricing accounted
for less than 1%. Sales levels were benefitted by particularly strong
demand in the mobile tool distribution and storage device areas, offset
somewhat by decreased demand for diesel engine retarders as North
American and Asian heavy truck production decreased in 1996. Operating
margins increased from 11.2% to 11.6%. This margin increase reflects the
benefits of the higher sales volumes and continued manufacturing process
improvements, offset by the full year effect of the lesser margins
associated with the hardware and electrical apparatus lines of JMC.
Process/Environmental Controls
The Process/Environmental Controls segment includes Fluke
Corporation, Veeder-Root Company, Danaher Controls, Partlow, Anderson
Instruments, West Instruments, Ltd., QualiTROL Corporation, A.L. Hyde
Company, Hengstler, American Sigma, the controls product line business
units of Joslyn Corporation, the operating businesses of Acme-Cleveland
Corporation (Namco Controls, Dolan-Jenner, M&M Precision Systems, TxPort,
Inc., Communications Technology Corporation) and Current Technology, Inc.
and Gems Sensors, Inc., both acquired in 1997. These companies produce
and sell compact electronic test tools, underground storage tank leak
detection systems and temperature, level, motion and position sensing
devices, power switches and controls, communication line products, power
protection products, liquid flow measuring devices, telecommunication
products, quality assurance products and systems, and electronic and
mechanical counting and controlling devices. These products are
distributed by the Company's sales personnel and independent
representatives to original equipment manufacturers, distributors and
other end users.
1997 COMPARED TO 1996
Sales in 1997 were 15% higher than in 1996 for this segment. The
acquisitions of Gems Sensors and Current Technology in 1997, as well as
the full-year effect of the Acme-Cleveland acquisition in July, 1996,
contributed 9% of the increase. Of the remaining increase, higher unit
volume contributed 5% and increased average pricing provided 1%, while
foreign currency translation resulted in a 2% decrease. Operating
margins decreased from 13.6% to 13.2%, largely from restructuring
activities at Fluke's European operations.
1996 COMPARED TO 1995
Sales growth of 26% in 1996 was largely the result of the full year
effect of the September, 1995 Joslyn acquisition and the 1996
Acme-Cleveland acquisition. Acquisitions contributed the majority of the
growth, with the balance coming from higher unit volumes of 3% and price
increases averaging less than 1%. Demand was very strong in the North
American market, which was largely offset by sluggish economic conditions
in international markets, particularly in Germany. Operating profit
increased 32% from 1995, reflecting the acquired businesses' contributions
and a steady overall contribution from the base businesses.
Discontinued Operations
In January, 1996, the Company divested its Fayette Tubular Products
subsidiary. As the Company no longer operates in the Transportation
business segment, Fayette's operation is shown as a discontinued
operation. A gain of approximately $80 million was recognized in the
first quarter of 1996.
Gross Profit
Gross profit, as a percentage of sales, in 1997 was 35.9%, a 1.0
point decrease compared to the 36.8% achieved in 1996. The Fluke European
restructuring was the largest contributor to this decline. A shift in
product mix associated with the acquisitions also impacted gross profit.
Gross profit margin in 1996 was 36.8%, a 1.7 percentage point
improvement compared to 1995. Productivity improvements were achieved in
all business segments and a shift in mix to the higher margin products of
the acquired companies in the Process/Environmental Controls business
segment contributed to the improvement.
Operating Expenses
Selling, general and administrative expenses for 1997 as a
percentage of sales were approximately 1.1 percentage points lower than
the 1996 level. This reflects improved fixed cost ratios
associated with higher sales levels.
In 1996, selling, general and administrative expenses were 24.9% of
sales, an increase of 1.1 percentage points from 1995 levels. This
principally reflects the higher operating expense levels of the
businesses acquired in 1996 and 1995.
Interest Costs and Financing Transactions
The Company's debt financing is privately placed debt maturing in
April, 2003 at an average interest cost of 7.2%, uncommitted lines and a
revolving credit facility which provides for senior financing of $250
million for general corporate purposes. The interest rates for borrowing
under the facility float with base rates. Interest expense in 1997 was
21% lower than in 1996 due to substantial cash flow generated from
operations. Interest expense in 1996 was $8.1 million higher than in
1995 as average borrowing levels increased due to acquisitions.
Income Taxes
The 1997 effective tax rate of 38.6% is 0.2 percentage points higher
than in 1996, reflecting a greater impact of nondeductible amortization
resulting from the acquisitions. The 1996 effective rate of 38.4% is 0.3
percentage points higher than in 1995, as certain foreign loss
carryforwards were not available to reduce tax expense in 1996.
Inflation and Other
The effect of inflation on the Company's operations has been minimal
in 1997, 1996, and 1995.
Liquidity and Capital Resources
The Company acquired Acme-Cleveland Corporation for approximately
$200 million in July, 1996 and, in September, 1995, acquired Joslyn
Corporation for approximately $245 million in cash consideration. See
Note 2 to Consolidated Financial Statements for a further discussion of
the impact of these acquisitions. In January, 1996, the Company sold its
Fayette Tubular Products subsidiary for $155 million in cash
consideration; the proceeds were used to reduce short-term borrowings.
As discussed previously, $86 million of the Company's debt is fixed
at an average interest cost of 7.2%. Substantially all remaining
borrowings are short-term in nature and float with referenced base rates.
As of December 31, 1997, the Company has unutilized commitments under its
revolving credit facility of $250 million.
Cash flow has been strong in all periods from 1995 through 1997.
Operations generated $302 million, $254 million and $217 million in cash
in 1997, 1996 and 1995, respectively. The principal use of funds has
been capital expenditures of $87 million, $64 million and $70 million in
1997, 1996 and 1995, respectively, and cash paid for acquisitions of $147
million, $246 million and $208 million in 1997, 1996 and 1995,
respectively. Cash flow for 1996 included the $155 million proceeds from
the Fayette sale. The net result of the above, combined with working
capital changes, was a decrease in debt of $41 million in 1997, $55
million in 1996, and an increase of $86 million in 1995.
The Company's funds provided from operations, as well as the
existing bank facility and available credit lines, should provide
sufficient available funds to meet the Company's working capital, capital
expenditure, dividend and debt service requirements for the foreseeable
future. <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, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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, based on our audit, the financial statements
referred to above present fairly, in all material respects, the financial
position of Danaher Corporation and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
July 9, 1998
<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Year Ended December 31,
1997 1996 1995
Sales. . . . . . . $2,492,002 $2,233,193 $1,899,463
Cost of sales . . . 1,598,431 1,409,693 1,232,004
Selling, general
and administrative
expenses. . . . . 592,515 556,094 451,467
Total operating
expenses. . . . . 2,190,946 1,965,787 1,683,471
Operating profit. . 301,056 267,406 215,992
Interest expense. . 13,211 16,813 8,729
Earnings from
continuing operations
before income taxes . 287,845 250,593 207,263
Income taxes. . . . . 111,239 96,236 78,974
Earnings from continuing
operations . . . . . 176,606 154,357 128,289
Discontinued operations,
net of income taxes of
$0 and $1,630 (1996 -
gain on sale; 1995 -
earnings from operations) -- 79,811 2,550
Net earnings. . . . . . $ 176,606 $ 234,168 $ 130,839
Basic earnings per share:
Continuing operations $1.32 $1.16 $ .97
Discontinued operations -- .60 .02
Net earnings $1.32 $1.76 $ .99
Average shares
outstanding 133,999 132,950 132,772
Diluted earnings per share:
Continuing operations $ 1.28 $1.13 $ .95
Discontinued operations -- .59 .02
Net earnings $1.28 $1.72 $ .96
Average common stock
and common equivalent
shares outstanding . . 137,730 136,123 135,685
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.<PAGE>
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of December 31,
ASSETS 1997 1996
Current assets:
Cash and equivalents . . $ 70,821 $ 67,521
Trade accounts receivable,
less allowance for doubtful
accounts of $19,000 and
$16,000 . . . . . . . . . . 403,858 342,389
Inventories. . . . . . . . . 265,122 256,909
Prepaid expenses and other. . 92,252 79,465
Total current assets . . . 832,053 746,284
Property, plant and equipment,
net. . . . . . . . . . . . . 403,488 378,324
Other assets . .. . . . . . . 84,982 115,634
Excess of cost over net assets
of acquired companies, less
accumulated amortization of
$129,000 and $103,000 . . . . 863,352 806,489
$2,183,875 $2,046,731
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
portion of debt . . . . . . . $ 35,910 $ 17,083
Trade accounts payable. . . . 152,066 123,683
Accrued expenses . . . . . . . 392,321 383,958
Total current liabilities. . 580,297 524,724
Other liabilities. . . . . . . 301,250 293,430
Long-term debt .. . . . . . . . 163,109 222,844
Stockholders' equity:
Common stock, one cent par value;
300,000 shares authorized;
146,335 and 146,157
issued; 134,741 and 135,563
outstanding. . . . . . . . . . . 1,464 1,462
Additional paid-in capital. . . . 344,843 355,075
Cumulative foreign translation
adjustment and other . . . . . . (13,259) 6,449
Retained earnings. . . . . . . . 806,171 642,747
Total stockholders' equity. .1,139,219 1,005,733
$2,183,875 $2,046,731
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,
1997 1996 1995
Cash flows from
operating activities:
Earnings from continuing
operations . . . . . . . . . . $176,606 $154,357 $128,289
Earnings from discontinued
operations . . . . . . . . . . -- -- 2,550
Depreciation and
amortization. . . . . . . . . . 91,702 82,424 75,913
Increase in accounts
receivable. . . . . . . . . . . (54,195) (18,230) (19,970)
(Increase) decrease in
inventories . . . . . . . . . . 9,921 40,189 (21,156)
Increase in accounts payable. . . 23,842 11,145 (174)
Change in other assets and
liabilities. . . . . . . . . . . 54,455 (15,918) 51,973
Total operating cash flows. . . 302,331 253,967 217,425
Cash flows from investing activities:
Payments for additions to
property, plant and equipment,
net . . . . . . . . . . . . . . (86,881) (63,981) (70,442)
Sale of Fayette Tubular Products . -- 155,000 --
Net cash paid for acquisitions (147,238) (246,427) (207,941)
Net cash used in investing
activities . . . . . . . . . (234,119) (155,408) (278,383)
Cash flows from financing activities:
Proceeds from issuance of
common stock. . . .. . . . . . . 8,742 8,893 6,492
Dividends paid .. . . . . . . . . (11,932) (11,215) (11,369)
Borrowings(repayments) of debt . .(40,916) (55,371) 85,970
Purchase of common stock . . . . .(19,909) (12,110) (4,704)
Net cash provided by(used in)
financing activities. . . . . (64,015) (69,803) 76,389
Effect of exchange rate
changes on cash. . . . . . . . . (897) (299) 241
Net change in cash and
equivalents. . . . . . . . . . . 3,300 28,457 15,672
Beginning balance of cash
and equivalents. . .. . . . . . 67,521 39,064 23,392
Ending balance of cash
and equivalents . . . .. . . . . $70,821 $67,521 $39,064
disclosures:
Cash interest payments. . . . $13,782 $17,458 $15,184
Cash income tax payments . . . $79,972 $91,584 $80,259
Common stock issued for
acquisitions . . . . . . . . $ -- $ 8,883 $ --
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)
Common Stock Additional
Shares Amount Paid-in Capital
Balance, December 31, 1994 144,181 $1,442 $ 342,669
Net earnings for
the year. . . . . . - - -
Dividends declared. . - - -
Common stock issued
for options
exercised. . . . . . 416 4 6,488
Purchase of Common Stock (4,704)
Increase from
translation of
foreign financial
statements. . . . . . - - -
Balance, December 31, 1995 144,597 1,446 344,453
Net earnings for
the year. . . . . . .
Dividends declared. . .
Common stock issued
for options
exercised. . . . . . 966 10 13,855
Unrealized gain on
securities held . . .
Decrease from
translation of
foreign financial
statements. . . . . .
Purchase of common
stock . . . .. . . . . (12,110)
Common stock issued
for acquisitions . . . 594 6 8,877
Balance, December 31, 1996 146,157 1,462 355,075
Net earnings for
the year. . . . . .
Dividends declared. .
Common stock issued
for options
exercised. . . . . 178 2 8,742
Purchase of common
stock . .. . . . . . (19,909)
Decrease from
translation of
foreign financial
statements. .. . . .
Unrealized gain on
securities held . .
Other . . . . . . . . 935
Balance, December 31, 1997 146,335 $1,464 $ 344,843
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(in thousands of dollars)
Cumulative Foreign
Retained Translation Adjustment
Earnings and Other
Balance, December 31, 1994 $ 298,994 $(5,086)
Net earnings for
the year. . . . . . 130,839 -
Dividends declared. . ( 9,744) -
Common stock issued
for options
exercised. . . . . . - -
Purchase of Common Stock
Increase from
translation of
foreign financial
statements. . . . . . - 11,466
Balance, December 31, 1995 420,089 6,398
Net earnings for
the year. . . . . . . 234,168
Dividends declared. . . (11,510)
Common stock issued
for options
exercised. . . . . .
Unrealized gain on
securities held. . . . - 4,000
Decrease from
translation of
foreign financial
statements. . . . . . (3,949)
Purchase of common stock
Common stock issued for
acquisitions
Balance, December 31, 1996 642,747 6,449
Net earnings for
the year. . . . . . 176,606
Dividends declared. . (12,278)
Common stock issued
for options
exercised. . . . .
Purchase of common
stock . .. . . . . .
Unrealized gain on securities
held . . . . . . . . . . . . 1,700
Sale of securities held . . . (4,000)
Decrease from
translation of
foreign financial
statements. .. . . . (17,408)
Other . . . . . . . . . . . . (904)
Balance, December 31, 1997 $ 806,171 $ (13,259)
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. Available for sale equity securities have
been shown at their fair market value.
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. $25,786,000,
$22,796,000 and $17,134,000 of amortization was charged to expense for the
years ended December 31, 1997, 1996 and 1995, respectively. When events
and circumstances so indicate, all long-term assets, including the Excess
of Cost Over Net Assets of Acquired Companies, are assessed for
recoverability based upon cash flow forecasts. Should an impairment
exist, fair value estimates would be determined based on the cash flow
forecasts, discounted at a market rate of interest.
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.
Earnings Per Share - The computation of diluted earnings per share
is based on the weighted average number of common shares and common stock
equivalents outstanding during the year.
Discontinued Operations - In January, 1996, the Fayette Tubular
Products subsidiary was sold for approximately $155 million. A gain of
approximately $80 million was recognized in 1996. Net sales for Fayette
were $155 million in 1995.
(2) Acquisitions:
On July 9, 1998, Fluke Corporation was acquired and merged into the
Company. The Company issued 17,785,122 shares of common stock in exchange
for all outstanding Fluke shares. The transaction was a tax-free
reorganization and was accounted for as a pooling-of-interests.
Accordingly, the financial statements as presented have been
restated to reflect the combined companies. Fluke Corporation's year end
was a 52/53-week fiscal year ending on the last Friday in April. To combine
with the Company, the twelve month periods ending January 23, 1998, January
24, 1997 and January 26, 1996 for Fluke have been utilized. Fluke is
engaged in the manufacture and marketing of compact, professional
electronic test tools.
The Company obtained control of Pacific Scientific Company as of
March 9, 1998. Total consideration was approximately $420 million. The
fair value of assets acquired was approximately $520 million and
approximately $100 million of liabilities were assumed. The transaction is
being accounted for as a purchase.
The Company obtained control of Acme-Cleveland Corporation (Acme) as
of July 2, 1996. Total consideration for Acme was approximately $200
million. The fair value of assets acquired was approximately $240
million, including $140 million of excess cost over net assets acquired,
and approximately $40 million of liabilities were assumed. The
transaction was accounted for as a purchase.
The unaudited pro forma information for the period set forth below
gives effect to this transaction as if it had occurred at the beginning of
the period. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisition been
consummated as of that time (unaudited, 000's omitted):
Year Ended
December 31, 1996
Net Sales . . . . . . . . . .. . . . . . . . . . . . . .$ 2,307,015
Net Earnings from continuing operations . . . . . . . . . 155,595
Earnings per share from continuing operations (diluted). . $ 1.14
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 the Company 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, including $180 million of excess of cost
over net assets acquired, 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.
In 1997, the Company acquired Gems Sensors and Current Technology
and several other entities. Aggregate consideration for these
transactions was approximately $147 million. The fair value of the assets
acquired was approximately $167 million and approximately $20 million of
liabilities were assumed in the acquisitions. The transactions have been
accounted for as purchases. These acquisitions had no significant impact
on 1997 results of operations. These entities have combined annual sales
levels of approximately $130 million.
(3) Inventory:
The major classes of inventory are summarized as follows (000's
omitted):
December 31, 1997 December 31, 1996
Finished goods. . . . . . . . $ 99,983 $ 103,748
Work in process. . . . .. . . 67,056 59,029
Raw material . . . . . .. . . 98,083 94,132
$ 265,122 $ 256,909
If the first-in, first-out (FIFO) method had been used for inventories
valued at LIFO cost, such inventories would have been $8,940,000 and
$10,959,000 higher at December 31, 1997 and 1996, respectively.
(4) Property, Plant and Equipment:
The major classes of property, plant and equipment are summarized as
follows (000's omitted):
December 31, 1997 December 31, 1996
Land and improvements . . . . . $ 23,926 $ 23,258
Buildings . . . . . . . . . . . 158,872 154,101
Machinery and equipment.. . . . 601,689 532,438
784,487 709,797
Less accumulated depreciation. . (380,999) (331,473)
Property, plant and equipment. . $ 403,488 $ 378,324
(5) Financing:
Financing consists of the following (000's omitted):
December 31, 1997 December 31, 1996
Notes payable . . . . . . . . $ 85,900 $ 100,600
Other . . . . . . . . . . . . 113,119 139,327
199,019 239,927
Less-currently payable. . . . 35,910 17,083
$ 163,109 $ 222,844
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 was approximately equal to their carrying value as of
December 31, 1997 and 1996.
Other includes principally short-term borrowings under uncommitted
lines of credit which are payable upon demand. The carrying amount
approximates fair value. The Company has a bank credit facility which
provides revolving credit through September 30, 2001, 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 .125%. Weighted average borrowings under the bank
facility were $-0-, $-0- and $5,000,000 for the years ended December 31,
1997, 1996 and 1995. Maximum amounts outstanding for these years were
$-0-, $-0- and $60,000,000, respectively. The Company is charged a fee of
.075% per annum for the facility. Commitment and facility fees of
$187,500, $234,000 and $216,000 were incurred in 1997, 1996 and 1995,
respectively. Interest expense of $7,150,000 is included in discontinued
operations for the year ended December 31, 1995. The weighted average
interest rate for short-term borrowings was 5.9%, 5.8% and 6.0% for each
of the three years ended December 31, 1997.
Other debt is classified as noncurrent as management intends to
refinance it and the bank credit facility provides the ability to
refinance maturities to September 30, 2001.
The minimum principal payments during the next five years are as
follows: 1998 - $35,910,000; 1999 - $43,399,000; 2000 - $202,000; 2001 -
$88,900,000; 2002 - $225,000 and $30,383,000 thereafter.
(6) Accrued Expenses and Other Liabilities:
Selected accrued expenses and other liabilities include the
following (000's omitted):
December 31, 1997 December 31, 1996
Current Noncurrent Current Noncurrent
Employee compensation. . . $ 52,247 $ 40,356 $ 53,162 $ 38,528
Insurance, including self
insurance . . . . . . . . . 8,809 58,230 11,163 48,463
Post retirement benefits. . 5,000 75,553 5,000 71,819
Environmental compliance . . 27,921 49,296 29,725 53,064
Approximately $17 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, and pension expense for defined benefit
plans is not significant for any of the periods presented. It is the
Company's policy to fund, at a minimum, amounts required by the Internal
Revenue Service.
The following sets forth the funded status of the plans as of the
most recent actuarial valuations (000's omitted):
1997 1996
Assets Exceed Assets Exceed Accumulated
Accumulated Accumulated Benefits
Benefits Benefits Exceed
Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation.. $199,708 $111,268 $55,587
Accumulated benefit
obligation. . . . . . . . 206,539 114,648 58,371
Projected benefit obligation.. 217,721 129,459 58,371
Fair value of plan assets
(consisting of stocks, bonds
and temporary cash
investments) . . . . . . . . 255,957 149,047 55,040
Projected benefit obligation
(in excess of) or less than
plan assets. . . . . . . . . 38,236 19,588 (3,331)
Unrecognized net (gain) loss.. (17,395) ( 4,583) 4,257
Unrecognized net asset . . . . (1,814) (952) (1,129)
Pension (liability) prepaid
recognized in the balance
sheet. . . . . . . . . . . . $ 19,027 $ 14,053 $ (203)
The expected long-term rate of return on plan assets was 10%. The
discount rate used in determining pension cost and benefit obligations was
7.5% at January 1, 1997 and 7.25% at December 31, 1997.
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 $29,791,000, $25,894,000
and $18,865,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
In addition to providing pension benefits, the Company provides
certain health care 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):
1997 1996 1995
Service cost . . . . $ 336 $ 536 $ 298
Interest cost . . . 4,058 4,295 4,734
$ 4,394 $ 4,831 $ 5,032
The following sets forth the program's funded status (000's
omitted):
December 31, 1997 December 31, 1996
Accumulated Post Retirement
Benefit Obligation (APBO):
Retirees. . . . . . . . . . $61,123 $52,387
Fully eligible active
participants. . . . . . . . 7,175 10,563
Other active participants .. 2,463 9,243
Total APBO . . . . . . . . 70,761 72,193
Net Gains . . . . . . . . . . . 9,792 4,626
Plan assets . . . . . . . . . . -- --
Accrued Liability . . . . . . $80,553 $76,819
A 10% annual rate of increase in per capita costs of covered health
care benefits was assumed for 1998, decreasing to 6% by 2002. A 1%
increase in the assumed cost trend assumption would increase the APBO by
$6.4 million and would have increased 1997 costs by approximately
$500,000. Discount rates of 7.25% and 7.50% were used to determine both
Plan costs and the APBO as of December 31, 1997 and 1996, respectively.
(8) Stock Transactions:
The common stock of the Company was split two-for-one to holders of
record as of May 5, 1998. All common stock and per share amounts have been
restated to reflect the stock split for all periods presented.
The Company has adopted a non-qualified stock option plan for which
it is authorized to grant options to purchase up to 15,000,000 shares.
Under the plan, options are granted at not less than 85% of existing
market prices, expire ten years from the date of grant and generally vest
ratably over a five-year period. An option to acquire 2,000,000 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
(thousands)
Outstanding at December 31, 1994 6,802
Granted (average $15.36 per share) 767
Exercised (average $4.77 per share) (416)
Cancelled (273)
Outstanding at December 31, 1995
(average $7.12 per share) 6,880
Granted (average $18.81 per share) 1,774
Exercised (average $3.88 per share) (967)
Cancelled (377)
Outstanding at December 31, 1996
(average $10.18 per share) 7,310
Granted (average $24.78 per share) 3,204
Exercised (average $7.63 per share) (178)
Cancelled (209)
Outstanding at December 31, 1997 (at
$2.97 to $30.10 per share, average
$14.86 per share) 10,127
As of December 31, 1997, options with a weighted average remaining
life of 4.6 years covering 4,714,000 shares were exercisable at $2.97 to
$22.82 per share (average $7.60 per share) and options covering 2,904,000
shares remain available to be granted.
Options outstanding at December 31, 1997 are summarized below:
Average Average Average Average
Exercise Number Exercise Remaining Number Exercise
Price Outstanding Price Life Exercisable Price
(thousands) (thousands)
$2.97 to $4.25 1,621 $3.35 2 years 1,621 $3.35
$4.50 to $6.75 1,401 $6.06 5 years 1,230 $5.97
$7.47 to $11.13 1,048 $8.83 6 years 828 $8.81
$11.32 to $14.44 1,149 $13.17 7 years 568 $12.90
$15.57 to $22.82 2,946 $20.42 9 years 467 $18.27
$22.94 to $30.10 1,962 $26.71 10 years -- --
Nonqualified options have been issued only at fair market value
exercise prices as of the date of grant during the periods presented
herein, and the Company's policy does not recognize compensation costs for
options of this type. Beginning in 1996, the pro-forma costs of these
options granted subsequent to January 1, 1995 have been calculated using
the Black-Scholes option pricing model and assuming a 7% risk-free
interest rate, a 10-year life for the option, a 15% expected volatility
and dividends at the current annual rate. The weighted average grant date
fair market value of options issued was approximately $7 per share in
1995, $8 per share in 1996 and $10 per share in 1997. Had this method
been used in the determination of income, net income would have decreased
by, approximately $5.3 million in 1997 and $1.4 million in 1996 and
diluted earnings per share would have decreased by $.04 in 1997 and $.01
in 1996. Since this amount represents only the proforma effect of options
granted since January 1, 1995, there was only a negligible impact on
reported net income for 1995, and these proforma amounts are not likely to
be representative of the effects on proforma net income for future years.
(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 $21,000,000 in 1998,
$18,000,000 in 1999, $13,000,000 in 2000, $9,000,000 in 2001, $8,000,000
in 2002 and $17,000,000 thereafter. Total rent expense charged to income
for all operating leases was $25,000,000, $23,000,000 and $24,000,000 for
the years ended December 31, 1997, 1996, and 1995, 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 then existing law,
environmental law now imposes retroactive liability, in some
circumstances, on persons who owned or operated wood-treating sites. JMC
is remediating some of its former sites and will remediate other sites in
the future. The Company has made a provision for environmental
remediation; 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, allegedly causing various physical injuries, and
property devaluation resulting from wood treating operations previously
conducted at a Louisiana site. The size of the class, the number of
injuries related to the alleged exposures and the amount of alleged
damages are all disputed and 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 uncertain ties, 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 results of operations or
financial condition, notwithstanding any related insurance recoveries.
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):
1997 1996 1995
Current:
Federal. . . . . . . $95,249 $69,357 $71,906
State and local. . . 12,925 6,600 8,000
Foreign. . . . . . . 7,481 12,113 5,000
Total current ... $115,655 $88,070 $84,906
Deferred:
Federal. . . . . . . (1,276) 8,233 (5,917)
Other . . . . . . . (3,140) (67) (15)
Total deferred . . (4,416) 8,166 (5,932)
Income tax provision . .$111,239 $96,236 $78,974
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) consist of the following (000's
omitted):
December 31,
1997 1996
Bad debt allowance .. . .. . $ 6,686 $ 5,805
Inventories . . .. . . . . . 3,656 5,488
Property, plant and equipment. (37,478) (34,403)
Post retirement benefits. .. . 32,319 30,552
Insurance, including self
insurance . . . . . .. . . . 21,755 18,920
Environmental compliance . . . 26,043 28,102
Other accruals . . . . . . . . 47,062 48,933
All other accounts . . . . . . (7,425) (9,668)
Operating loss carryforwards . 15,203 28,096
Gross deferred tax asset. . . 107,821 121,825
Valuation allowances. .. . . . (10,852) (23,461)
Net deferred tax asset . . . . $ 96,969 $ 98,364
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
1997 1996 1995
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. . . 3.3 2.9 2.2
State income taxes (net of Federal
income tax benefit).. . . . . . . . . 2.9 1.7 2.5
Taxes on foreign earnings. . . . . . . (2.6) (1.2) (1.6)
Effective income tax rate. . . . . . . 38.6% 38.4% 38.1%
(12) Segment Data:
The Company operates within two major business segments: Tools and
Components, and Process/Environmental Controls. The Tools and Components
segment has a customer which accounted for approximately 11%, 11% and 13%
of total sales in 1997, 1996 and 1995, respectively.
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 amounts
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,
1997 1996 1995
Total Sales:
Tools and Components $1,192,761 $1,103,443 $1,005,005
Process/Environmental Controls 1,299,241 1,129,750 894,458
$2,492,002 $2,233,193 $1,899,463
Operating Profit:
Tools and Components $ 144,370 $ 128,118 $ 112,981
Process/Environmental Controls 171,141 153,513 116,539
Other (14,455) (14,225) (13,528)
$ 301,056 $ 267,406 $ 215,992
Identifiable Assets:
Tools and Components $ 832,614 $ 861,345 $ 821,604
Process/Environmental Controls 1,264,384 1,130,856 869,453
Other 86,877 54,530 64,921
$2,183,875 $2,046,731 $1,755,978
Depreciation and Amortization:
Tools and Components $ 44,908 $ 40,237 $ 35,211
Process/Environmental Controls 46,794 42,187 40,702
$ 91,702 $ 82,424 $ 75,913
Capital Expenditures:
Tools and Components $ 38,304 $ 31,346 $ 48,500
Process/Environmental Controls 48,577 32,635 21,942
$ 86,881 $ 63,981 $ 70,442
Operations in Geographical Areas -
Year Ended December 31,
1997 1996 1995
Total Sales:
United States. . . . . . . . . $1,979,346 $1,796,303 $1,444,081
Europe . . . . . . . . . . . . 370,835 359,486 371,779
Other.. . . . . . . . . . . . . 141,821 77,404 83,603
$2,492,002 $2,233,193 $1,899,463
Operating Profit:
United States. . . . . . . . . $ 260,847 $ 237,781 $ 177,191
Europe . . . . . . . . . . . . 26,926 23,020 31,046
Other. . . . . . . . . . . . . 13,283 6,605 7,755
$ 301,056 $ 267,406 $ 215,992
Identifiable Assets:
United States. . . . . . . . . $1,727,727 $1,733,304 $1,449,184
Europe . . . . . . . . . . . . 368,167 278,733 274,405
Other. . . . . . . . . . . . . 87,981 34,694 32,389
$2,183,875 $2,046,731 $1,755,978
(13) Quarterly Data-Unaudited (000's omitted except per share data)
1997
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net sales . . . . . $ 581,530 $ 608,369 $ 626,785 $ 675,318
Gross profit. . . . 198,316 220,824 232,815 241,616
Operating profit. . 55,950 76,244 83,084 85,778
Net earnings. . . . 31,756 44,838 49,258 50,754
Earnings per share:
Basic. . . . . . . $ .24 $ .34 $ .37 $ .38
Diluted. . . . . . $ .23 $ .33 $ .36 $ .37
1996
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net sales . . . .. . $515,795 $536,051 $576,260 $605,087
Gross profit. . . . 184,292 192,386 206,516 240,306
Operating profit.. . 58,061 64,905 70,375 74,065
Earnings from continuing
operations . . . . . . 33,941 38,084 39,981 42,351
Gain on sale from
discontinued operations 79,811 - - -
Net earnings. . . . . . 113,752 38,084 39,981 42,351
Basic earnings per share:
Continuing operations $ .26 $ .29 $ .30 $ .32
Discontinued operations .60 - - -
Net earnings $ .86 $ .29 $ .30 $ .32
Diluted earnings per share:
Continuing operations $ .25 $ .28 $ .29 $ .31
Discontinued operations .59 - - -
Net earnings $ .84 $ .28 $ .29 $ .31
(14) Allowance for Doubtful Accounts:
Details of activity related to the allowance for doubtful accounts
is presented below:
Additions
Balance at Charged to Charged Write Offs, Balance
Classification Beginning Costs & to other Write Downs at end of
of Period Expenses Accounts & Deductions Period
Year Ended December 31, 1997
Allowances deducted
from asset accounts:
Allowance for
doubtful accounts $16,000 $ 6,986 $ 510(a) $ 4,496 $19,000
Year Ended December 31, 1996
Allowances deducted
from asset accounts:
Allowance for
doubtful accounts $14,000 $ 6,161 $ 507(a) $ 4,668 $16,000
Year Ended December 31, 1995
Allowances deducted
from asset accounts:
Allowance for 4,661
doubtful accounts $12,000 $ 5,567 $ 2,961(a) $ 1,867(b) $14,000
Notes: (a)- Amounts related to businesses acquired.
(b)- Amounts related to businesses disposed of.
