DANAHER CORPORATION
1996 ANNUAL REPORT
SELECTED FINANCIAL DATA
(000's omitted except per share data)
1996 1995 1994 1993 1992
Net revenues $1,811,878 $1,486,769 $1,113,973 $937,633 $845,684
Operating profit 226,136 180,257 124,427 87,058 58,899
Earnings from
continuing
operations 127,959 105,766 72,319 48,030 30,443
Per share 2.13 1.77 1.24 .83 .53
Discontinued
operations 79,811 2,550 9,331 5,719 1,158
Per share 1.33 .04 .16 .10 .02
Earnings before
cumulative effect
of accounting
change 207,770 108,316 81,650 53,749 31,601
Per share 3.47 1.81 1.40 .93 .55
Cumulative effect of
accounting change* -- -- -- (36,000) --
Per share* -- -- -- (.62) --
Net earnings 207,770 108,316 81,650 17,749 31,601
Earnings per
common share 3.47 1.81 1.40 .31 .55
Dividends declared 5,360 4,672 3,710 3,412 --
Dividends per share .09 .08 .065 .06 --
Total assets 1,765,074 1,485,991 1,105,645 872,472 769,815
Total debt 236,327 283,587 185,286 133,585 168,768
* Adoption of accrual method specified by SFAS No. 106 for post
retirement benefits.
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 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, and Coats
and Ammco wheel service equipment. In its Process/Environmental
Controls segment, the Company is a leading producer of leak
detection sensors for underground fuel storage tanks and motion,
temperature, pressure, level, flow and power reliability and quality
control devices.
Presented below is a summary of revenues broken down by
business segment (000's omitted).
1996 1995 1994
$ % $ % $ %
Tools and
Components $1,103,443 60.9% $1,005,005 67.6% $ 809,989 72.7%
Process/
Environmental
Controls 708,435 39.1 481,764 32.4 303,984 27.3
$1,811,878 100.0% $1,486,769 100.0% $1,113,973 100.0%
Tools and Components
The Tools and Components segment is comprised of the Danaher
Hand Tool Group (including Special Markets and Professional Tools
divisions), Matco Tools, Jacobs Chuck Manufacturing Company, Iseli
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.
1996 COMPARED TO 1995
Revenues 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.
1995 COMPARED TO 1994
Revenues in 1995 were 24% higher than 1994. Acquisitions
accounted for 17%, while price increases provided 1% and higher
shipment volumes provided 6%. Demand for drill chucks and diesel
engine retarders was particularly strong in 1995. Operating profit
growth exceeded the sales improvement at 39%, reflecting continued
process improvements in the manufacturing operations. The acquired
operations of Delta, which were only reflected for one month in 1994
operations, and the hardware and electrical apparatus lines of JMC
provided lesser profit margins than the existing business units,
partially offsetting the performance improvements.
Process/Environmental Controls
The Process/Environmental Controls segment is comprised of the
Veeder-Root Company, Danaher Controls, Partlow/Anderson Instrument,
Gulton Industries-Graphic Instruments, West Instruments, Ltd.,
Qualitrol Corporation, A.L. Hyde Company, Hengstler, McCrometer, the
controls product line business units of Joslyn Corporation and the
operating businesses of Acme-Cleveland Corporation (Namco Controls,
M&M Precision Systems, TxPort, Inc. and Communications Technology
Corporation) acquired in July, 1996. These companies produce and
sell underground storage tank leak detection systems and
temperature, level 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.
1996 COMPARED TO 1995
Revenue growth of 47% 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 44% 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 39% from 1995, reflecting the
acquired businesses' contributions and a steady overall contribution
from the base businesses.
1995 COMPARED TO 1994
Revenues in 1995 were 58% higher than in 1994 in this segment.
Business acquisitions in the segment contributed 52% of the
increase. Of the remaining increase, higher unit volumes
contributed 5% and increased average pricing provided 1%. Demand
for underground storage tank monitoring equipment remained strong.
Operating margins decreased from 18.6% to 16.8%, entirely due to the
impact of the Hengstler and Joslyn acquisitions. Base business
showed a modest increase in operating margin. The Hengstler
acquisition has significantly increased market position in Europe
for the counter and encoder product lines.
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 margin in 1996 was 31.6%, a 1.5 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.
Gross profit, as a percentage of sales, in 1995 was 30.1%, a
1.2 percentage point increase compared to the 28.9% achieved in
1994. Productivity improvements, combined with increased fixed cost
leverage, resulted in margin improvement. A shift in product mix
associated with the acquisitions also increased the gross profit
margin.
Operating Expenses
In 1996, selling, general and administrative expenses were
19.1% 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 September, 1995.
Selling, general and administrative expenses for 1995 as a
percentage of sales were approximately 0.2 percentage points higher
than the 1994 level. This reflects higher cost ratios in the
businesses acquired.
Interest Costs and Financing Transactions
The Company debt financing is provided by $100 million in
privately placed debt, maturing in April, 2003 at an average
interest cost of 7.2%, 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.
The Company's financing requirements in these years were
satisfied by the financing discussed above and through borrowings
under uncommitted lines. Interest expense in 1996 was $9.2 million
higher than in 1995 as average borrowing levels increased due to
acquisitions. Interest expense in 1995 was 125% higher than in
1994, due to higher average borrowing levels caused primarily by the
acquisitions made in the fourth quarter of 1994 and the third
quarter of 1995.
Income Taxes
The 1996 effective tax rate of 39.0% reflects a greater impact
of nondeductible amortization resulting from the acquisitions and
higher taxes on foreign earnings as loss carryforwards were not
available to reduce tax expense in 1996. The effective tax rate
decreased 1.4 percentage points in 1995 to 38.9% of pre-tax income.
The decrease in 1995 is principally due to a lower effective rate on
certain foreign earnings and the utilization of tax carryforwards in
foreign jurisdictions which were not previously recognized in
earlier years.
Inflation
The effect of inflation on the Company's operations has been
minimal in 1996, 1995, and 1994.
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
December, 1995, the Company entered into an agreement to sell its
Fayette Tubular Products subsidiary for $155 million in cash
consideration. The transaction closed in January, 1996, and the
proceeds were used to reduce short-term borrowings.
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 including approximately $31 million in
common stock. These acquisitions had no significant impact on the
1994 results of operations as the larger acquisitions were not
completed until the fourth quarter. These entities have combined
annual sales levels of $220 million.
As discussed previously, $100 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, 1996, the Company has
unutilized commitments under its revolving credit facility of $250
million.
Cash flow has been strong in all periods from 1994 through
1996. Operations generated $217 million, $174 million and $140
million in cash in 1996, 1995, and 1994, respectively. The
principal use of funds has been capital expenditures of $51 million,
$59 million and $35 million in 1996, 1995 and 1994, respectively and
cash paid for acquisitions of $246 million, $208 million and $136
million in 1996, 1995, and 1994, 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 $48 million in 1996, and increases of $98
million and $52 million in 1995 and 1994.
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.
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, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996.
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, 1996 and
1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Washington, D.C.
January 29, 1997
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except per share data)
Year Ended December 31,
1996 1995 1994
Net revenues.. . . . . . $1,811,878 $1,486,769 $1,113,973
Cost of sales. .. . . . . 1,239,846 1,039,622 791,874
Selling, general
and administrative
expenses.. . . . . . . . 345,896 266,890 197,672
Total operating
expenses.. . . . . . . . 1,585,742 1,306,512 989,546
Operating profit. . . . . 226,136 180,257 124,427
Interest expense. . . .. 16,376 7,198 3,201
Earnings from continuing
operations before
income taxes . . . . . 209,760 173,059 121,226
Income taxes. . . . . 81,801 67,293 48,907
Earnings from continuing
operations . .. . . . 127,959 105,766 72,319
Discontinued operations,
net of income taxes of
$0, $1,630 and $5,966
(1996 - gain on sale; 1995
and 1994 - earnings from
operations). . . . . . . 79,811 2,550 9,331
Net earnings. . . . . . . $ 207,770 $ 108,316 $ 81,650
Per share:
Continuing operations $2.13 $1.77 $1.24
Discontinued operations 1.33 .04 .16
Net earnings $3.47 $1.81 1.40
Average common stock
and common equivalent
shares outstanding. . 59,954,636 59,862,673 58,326,572
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
As of December 31,
ASSETS 1996 1995
Current assets:
Cash and equivalents. . . . . . . . . . $ 26,444 $ 7,938
Trade accounts receivable, less allowance
for doubtful accounts of $14,868 and
$13,431 . .. . . . . . . . . . . . . . 266,668 224,652
Inventories. . .. . . . . . . . . . . . . 204,236 201,890
Prepaid expenses and other. . . . . . . . 49,393 31,990
Total current assets . . . . . . . . 546,741 466,470
Property, plant and equipment, net. . . . 319,606 291,937
Other assets . . . . . . . . . . . . . . . 105,903 119,444
Excess of cost over net assets of acquired
companies, less accumulated amortization
of $92,583 and $72,125 . . . . . . . . . 792,824 608,140
$1,765,074 $1,485,991
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of debt .$ 16,757 $ 14,970
Trade accounts payable. . . . .. . . . . 110,194 92,290
Accrued expenses. . . . . . . .. . . .. . 347,622 296,878
Total current liabilities. . . . . . 474,573 404,138
Other liabilities. . . . . . . .. . . . . 270,670 226,925
Long-term debt . . . . . . . . . . . . . 219,570 268,617
Stockholders' equity:
Common stock, one cent par value;
125,000,000 sharesauthorized;
64,186,673 and 63,406,214 issued;
58,889,067 and 58,503,008 outstanding. 642 634
Additional paid-in capital. . . . . . . 333,587 315,205
Cumulative foreign translation adjustment
and other . . . . . . .. . . . . . . 8,858 3,598
Retained earnings. . . . . . .. . . . . . . 506,773 304,363
Treasury stock, at cost; 5,297,606 and
4,903,206 shares.. . . . . . . . . . (49,599) (37,489)
Total stockholders' equity. . . . . 800,261 586,311
$1,765,074 $1,485,991
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Year Ended December 31,
1996 1995 1994
Cash flows from operating activities:
Earnings from continuing operations $127,959 $105,766 $ 72,319
Earnings from discontinued operations . - 2,550 9,331
Depreciation and amortization. . . 68,626 58,527 42,554
Increase in accounts receivable. . . (11,818) (20,098) (15,786)
(Increase) decrease in inventories. . 38,866 (15,589) (938)
Increase in accounts payable. . . . . 10,385 626 8,712
Change in other assets and
liabilities. . . . . . . . . . . . (16,904) 42,374 24,162
Total operating cash flows. .. 217,114 174,156 140,354
Cash flows from investing activities:
Payments for additions to property,
plant and equipment, net (51,255) (59,172) (34,811)
Sale of Fayette Tubular Products. . . 155,000 - -
Ivestments in equity securities. . . - - (22,032)
Net cash paid for acquisitions. . . .(246,427) (207,941) (136,055)
Net cash used in investing
activities . . . . . . (142,682) (267,113) (192,898)
Cash flows from financing activities:
Proceeds from issuance of
common stock. . . . . . . . . . . 9,507 3,559 992
Dividends paid . . . . . . . . . . (5,065) (4,672) (3,420)
Borrowings (repayments) of debt. . . (48,407) 98,301 51,701
Purchase of common stock . . . . . (12,110) - -
Net cash provided by (used in)
financing activities. . . . . (56,075) 97,188 49,273
Effect of exchange rate changes
on cash. .. . . . . . . . . . 149 108 269
Net change in cash and
equivalents. . . . . . . . . . . 18,506 4,339 (3,002)
Beginning balance of cash and
equivalents. . . . . . . . . . 7,938 3,599 6,601
Ending balance of cash and
equivalents . . . . . . . . . . $ 26,444 $ 7,938 $ 3,599
Supplemental disclosures:
Cash interest payments. . . . $ 16,981 $ 13,699 $ 9,505
Cash income tax payments .. $ 80,152 $ 69,853 $ 65,837
Common stock issued for
acquisitions . .. . . . . . $ 8,883 $ - $ 31,131
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands of dollars) Cumulative
Foreign
Additional Translation
Common Stock Paid-in Retained Treasury Adjustment
Shares Amount Capital Earnings Stock and Other
Balance, January 1,1994. 61,800,328 $ 309 $279,532 $123,095 $(37,489)$(1,781)
Net earnings for the year.. - - - 81,650 - -
Dividends declared. . . . - - - (3,710) - -
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 - (316) - -
Increase from translation of
foreign financial statements. - - - - - 2,371
Balance, December 31, 1994 63,198,208 632 311,648 200,719 (37,489) 590
Net earnings for the year. - - - 108,316 - -
Dividends declared. . . . . - - - (4,672) - -
Common stock issued for
options exercised. . . . 208,006 2 3,557 - -
Increase from translation of
foreign financial statements. - - - - - 3,008
Balance, December 31, 1995 63,406,214 634 315,205 304,363 (37,489) 3,598
Net earnings for the year.. - - - 207,770 - -
Dividends declared. .. .. - - - - (5360) - -
Common stock issued for
options exercised. . . . 483,233 5 9,502 - - -
Purchase of common stock .. - - - (12,110) -
Unrealized gain on securities
held. . . . . . .. . . . . - - - - - 4,000
Common stock issued for
acquisitions. . . . . . . . 297,226 3 8,880 - - -
Increase from translation of
foreign financial statements - - - - - 1,260
Balance, December 31,1996 64,186,673 $642 $333,587 $506,773 $(49,599) $8,858
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
(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 with a cost of
approximately $6.6 million have been shown at their fair market value as of
December 31, 1996. This $4 million unrealized gain has been reflected as a
component of stockholders' equity. No realized gains or losses are
reflected in any of the years presented.
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. $20,458,000,
$14,482,000 and $9,765,000 of amortization was charged to expense for the
years ended December 31, 1996, 1995, and 1994, 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. No impairment losses have been recognized
in any of the periods presented.
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 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. 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 was recognized in 1996. Net revenues
for Fayette were $155 million in 1995 and $175 million in 1994. Net assets
reflected in prepaid expenses and other and in other assets were $48 million
as of December 31, 1995.
(2) Acquisitions:
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 is approximately $240 million,
including $140 million of excess cost over net assets acquired, and
approximately $40 million of liabilities were assumed. The transaction is
being accounted for as a purchase. The purchase price allocations have been
completed on a preliminary basis, subject to adjustment should new or
additional facts about the business become known.
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.
The unaudited pro forma information for the periods set forth below
give effect to these transactions as if they 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 acquisitions been consummated
as of that time (unaudited, 000's omitted):
Year Ended
December 31, December 31,
1996 1995
Net Sales .. . . . . . . . . . $ 1,885,700 $ 1,767,154
Net Earnings from continuing
operations . . . . . . .. . . 129,197 111,838
Earnings per share from continuing
operations . . . . . . . . . . . $ 2.15 $ 1.87
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.
(3) Inventory:
The major classes of inventory are summarized as follows (000's
omitted):
December 31, 1996 December 31, 1995
Finished goods. . . . . . $ 88,083 $ 89,932
Work in process. . . . . . 49,681 51,904
Raw material . . . . . . . 66,472 60,054
$ 204,236 $ 201,890
If the first-in, first-out (FIFO) method had been used for inventories
valued at LIFO cost, such inventories would have been $10,959,000 and
$12,167,000 higher at December 31, 1996 and 1995, respectively.
(4) Property, Plant and Equipment:
The major classes of property, plant and equipment are summarized as
follows (000's omitted):
December 31, 1996 December 31, 1995
Land and improvements . . . $ 17,457 $ 15,015
Buildings . . . . . .. . . 107,343 93,312
Machinery and equipment. . . . . 413,636 352,176
538,436 460,503
Less accumulated depreciation.. (218,830) (168,566)
Property, plant and equipment..$ 319,606 $ 291,937
(5) Financing:
Financing consists of the following (000's omitted):
December 31, 1996 December 31, 1995
Notes payable . . . . . $100,600 $115,300
Other . . . . . . . . . . 135,727 168,287
236,327 283,587
Less-currently payable.. . 16,757 14,970
$219,570 $268,617
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 $101 million and $120 million as of December 31, 1996 and 1995.
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%. The weighted
average interest rate was 5.8%, 6.0% and 5.1% for each of the three years
ended December 31, 1996. Weighted average borrowings under the bank
facility were $-0-, $5,000,000 and $2,986,000 for the years ended December
31, 1996, 1995 and 1994. Maximum amounts outstanding for these years were
$-0-, $60,000,000 and $33,525,000 respectively. The Company is charged a
fee of .075% per annum for the facility. Commitment and facility fees of
$234,000, $216,000 and $258,000 were incurred in 1996, 1995 and 1994.
Interest expense of $7,150,000 and $6,112,000 is included in discontinued
operations for the years ended December 31, 1995 and 1994.
The minimum principal payments during the next five years are as
follows: 1997 - $16,757,000; 1998 - $14,835,000; 1999 - $41,335,000; 2000 -
$135,000; 2001 - $132,860,000; and $30,405,000 thereafter.
(6) Accrued Expenses and Other Liabilities:
Selected accrued expenses and other liabilities include the following
(000's omitted):
December 31, 1996 December 31, 1995
Employee compensation . . . . $ 77,402 $ 60,655
Insurance, including self
insurance . . . . . .. . . . 58,364 49,961
Post retirement benefits. . . 76,819 76,844
Environmental compliance . . . 82,591 88,212
Approximately $21 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):
1996 1995
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation.. $56,216 $55,587 $58,595 $57,042
Accumulated benefit
obligation. . . . . . . . 57,637 58,371 59,516 59,649
Projected benefit obligation 57,650 58,371 59,516 59,649
Fair value of plan assets
(consisting of stocks, bonds
and temporary cash
investments).. . . . . . . 79,226 55,040 72,969 56,240
Projected benefit obligation
(in excess of) or less than
plan assets. . . . . . . . . 21,576 (3,331) 13,453 (3,409)
Unrecognized net (gain)loss .(14,360) 4,257 (4,120) 2,919
Unrecognized net asset. . . . (487) (1,129) (605) (1,269)
Pension (liability) prepaid
recognized in the balance
sheet. . . . . . . . . . . .$ 6,729 $ (203) $ 8,728 $(1,759)
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, 1996 and December 31, 1996.
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 $16,754,000, $11,870,000 and
$8,677,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
In addition to providing pension benefits, the Company provides
certain healthcare and life insurance benefits for some of its retired
employees. Certain employees may become eligible for these benefits as they
reach normal retirement age while working for the Company.
Post retirement benefits cost included the following components (000's
omitted):
1996 1995 1994
Service cost . . . . . . . .$ 536 $ 298 $ 256
Interest cost . . . . . . . . 4,295 4,734 3,995
$4,831 $5,032 $4,251
The following sets forth the program's funded status (000's omitted):
December 31, 1996 December 31, 1995
Accumulated Post Retirement
Benefit Obligation (APBO):
Retirees. . . . . . . . $52,387 $52,788
Fully eligible active
participants. . . . .. . 10,563 10,840
Other active participants. 9,243 11,265
Total APBO . . . . . . . . 72,193 74,893
Net Gains . . . . . . . . . . 4,626 1,951
Plan assets . .. . . . . . . - -
Accrued Liability . . . . . $76,819 $76,844
A 10% annual rate of increase in per capita costs of covered
healthcare benefits was assumed for 1997, decreasing to 6% by 2002. A 1%
increase in the assumed cost trend assumption would increase the APBO by
$7.2 million and would have increased 1996 costs by approximately $600,000.
A discount rate of 7.5% was used to determine both Plan costs and the APBO
as of December 31, 1995 and 1996.
(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 5,000,000 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 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, 1994 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
(average $14.23 per share) 3,439,876
Granted (average $37.61 per share) 887,100
Exercised (average $7.76 per share) (483,233)
Cancelled (188,508)
Outstanding at December 31, 1996
(at $5.94 to $45.63 per share,
average $20.35 per share) 3,655,235
As of December 31, 1996, options with a weighted average remaining
life of 6.9 years covering 1,920,000 shares were exercisable at $5.94 to
$32.63 per share (average $12.48 per share) and options covering 949,284
shares remain available to be granted.
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 $13 per share in 1995 and $15 per share in
1996. Had this method been used in the determination of income for 1996,
net income would have decreased by approximately $1.4 million and earnings
per share would have decreased by $.02. 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 the 1995 and 1996
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 $14,215,000 in 1997, $11,836,000 in 1998,
$8,184,000 in 1999, $4,682,000 in 2000, $4,106,000 in 2001 and
$10,762,000 thereafter. Total rent expense charged to income for all
operating leases was $16,009,000, $16,067,000 and $8,947,000 for the years
ended December 31, 1996, 1995, and 1994, 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 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 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):
1996 1995 1994
Federal. .. . . . . . . . . $69,357 $56,308 $40,297
State and local.. . . . . . 5,284 6,815 5,400
Foreign. . . . .. . . . . . 7,160 4,170 3,210
$81,801 $67,293 $48,907
Income tax expense currently payable was $74,908,000, $73,225,000 and
$70,865,000 for the years ended December 31, 1996, 1995 and 1994,
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) consist of the following (000's omitted):
December 31,
1996 1995
Bad debt allowance . . . . . . . . . . . $ 5,505 $ 4,681
Inventories . . . . . . . . . . . . . . (171) (926)
Property, plant and equipment . . . . . . (29,100) (25,395)
Post retirement benefits. . . . . . . . . 30,552 28,405
Insurance, including self insurance . . . 18,920 18,486
Environmental compliance . .. . . . . . . 28,102 32,638
Other accruals . . . . . . . . . . . . . . 42,559 35,603
All other accounts . . . . . . . . . . . . (4,793) (3,840)
Operating loss carryforwards . . . . . . . 8,265 7,000
Gross deferred tax asset . . . . . . . . . 99,839 96,652
Valuation allowances.. . . . . . . . . . (8,265) (7,000)
Net deferred tax asset . . . . . . . . . .$ 91,574 $ 89,652
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
1996 1995 1994
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. . . . 3.4 2.9 2.8
State income taxes (net of Federal
income tax benefit).. . . . . . . . . 1.6 2.6 2.9
Taxes on foreign earnings. . . . . . (1.0) (1.6) (0.4)
Effective income tax rate. .. . . . 39.0% 38.9% 40.3%
(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 14%, 16% and 21% of
total sales in 1996, 1995 and 1994, 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, 1996 1995 1994
Total Revenues:
Tools and Components $1,103,443 $1,005,005 $ 809,989
Process/Environmental Controls 708,435 481,764 303,984
$1,811,878 $1,486,769 $1,113,973
Operating Profit:
Tools and Components $ 128,118 $ 112,981 $ 81,463
Process/Environmental Controls 112,243 80,804 56,632
Other (14,225) (13,528) (13,668)
$ 226,136 $ 180,257 $ 124,427
Identifiable Assets:
Tools and Components $ 861,345 $ 821,604 $ 687,908
Process/Environmental Controls 849,199 599,466 340,952
Other 54,530 64,921 76,785
$1,765,074 $1,485,991 $1,105,645
Depreciation and Amortization:
Tools and Components $ 40,237 $ 35,211 $ 32,220
Process/Environmental Controls 28,389 23,316 10,334
$ 68,626 $ 58,527 $ 42,554
Capital Expenditures:
Tools and Components $ 31,346 $ 48,500 $ 40,392
Process/Environmental Controls 19,909 10,672 8,348
Sales of Fixed Assets - - (13,929)
$ 51,255 $ 59,172 $ 34,811
Operations in Geographical Areas -
Year Ended December 31, 1996 1995 1994
Total Revenues:
United States. . . . . . $1,565,110 $1,235,933 $1,004,697
Europe .. . .. . . . . . 205,416 205,228 77,126
Other. . . . . . . . . . 41,352 45,608 32,150
$1,811,878 $1,486,769 $1,113,973
Operating Profit:
United States. .. . . . $ 207,433 $ 156,170 $ 115,589
Europe . . . . . . . . . 15,107 20,348 7,179
Other. . . . . . . . . . 3,596 3,739 1,659
$ 226,136 $ 180,257 $ 124,427
Identifiable Assets:
United States. . . . . . $1,552,665 $1,292,166 $1,029,825
Europe . . . . . . . . . 188,660 173,949 62,833
Other. . . . . . . . . . 23,749 19,876 12,987
$1,765,074 $1,485,991 $1,105,645
Export sales were approximately $144 million, $107 million and $91 million
for the years ended December 31, 1996, 1995 and 1994.
(13) Quarterly Data-Unaudited (000's omitted except per share data)
1996
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net revenues. . . $409,557 $434,897 $470,787 $496,637
Gross profit. . . 124,293 137,988 149,021 160,730
Operating profit. 47,128 56,302 60,293 62,413
Earnings from
continuing operations 26,928 32,525 33,577 34,929
Gain on sale from
discontinued
operations . . . . . 79,811 - - -
Net earnings. . . . . 106,739 32,525 33,577 34,929
Earnings per share:
Continuing operations $ .45 $ .54 $ .56 $ .58
Discontinued operations 1.34 - - -
Net earnings $1.79 $ .54 $ .56 $ .58
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
Danaher Corporation and Subsidiaries
Operating Executives
A.L. Hyde Company
Richard L. Garthwaite
President
American Sigma, Inc.
William G. Hungerford
President
Communications Technology Corporation
Alan G. Hutcheson
President
Cyberex, Inc.
Gus Stevens
President
Danaher Controls
James W. Appelgren
President
Danaher Tool Group
Professional Tools
Division
Steven E. Simms
President
Danaher Tool Group
Special Markets Division
Thomas R. Sulentic
President
Delta Consolidated Industries
Thomas P. Joyce, Jr.
President
Gulton-Graphic Instruments
William J. Butler
President
Hengstler GmbH
Hermann E. Braun
President
Hennessy Industries, Inc.
Steven E. Simms
Acting President
Jacobs Chuck Manu-
facturing Company
Dennis D. Claramunt
President
Jacobs Vehicle Systems, Inc.
Gregory T.H. Davies
President
Jennings Technology Corporation
John P. Williamson
President
Joslyn Electronic Systems Corporation
S. Keith Swanson
President
Joslyn Hi-Voltage Corporation
James F. Domo
President
Joslyn Manufacturing Company
Gary P. Prasser
President
Joslyn Sunbank Corporation
P. Edward Prutzman
President
Matco Tools Corporation
Thomas N. Willis
President
M&M Precision Systems Corporation
James E. Helton
President
Namco Controls Corporation
Alex A. Joseph
President
Partlow Corporation
Lawrence C. Curtis
President
Qualitrol Corporation
Alex A. Joseph
Acting President
TxPort, Inc.
Mark H. Hoffman
President
Veeder-Root Company
H. Lawrence Culp, Jr.
President
Officers and Senior
Executives
George M. Sherman
President and Chief
Executive Officer
Patrick W. Allender
Senior Vice President,
Chief Financial Officer and Secretary
C. Scott Brannan
Vice President - Administration
and Controller
Dennis D. Claramunt
Vice President and Group Executive
Daniel L. Comas
Vice President - Corporate
Development
H. Lawrence Culp, Jr.
Vice President and Group Executive
Gregory T.H. Davies
Vice President and Group Executive
Mark C. DeLuzio
Vice President - Danaher
Business System
James H. Ditkoff
Vice President - Finance & Tax
Steven E. Simms
Vice President and Group Executive
John P. Watson
Vice President and Group Executive
Directors
Mortimer M. Caplin
Partner
Caplin & Drysdale
Donald J. Ehrlich
President, Chairman and
Chief Executive Officer
Wabash National Corp.
Walter G. Lohr, Jr.
Partner
Hogan & Hartson
Mitchell P. Rales
Partner
Equity Group Holdings
Chairman of the
Executive Committee
Danaher Corporation
Steven M. Rales
Partner
Equity Group Holdings
Chairman of the Board
Danaher Corporation
George M. Sherman
President and Chief
Executive Officer
Danaher Corporation
A. Emmet Stephenson, Jr.
President
Stephenson and Company
Auditors
Arthur Andersen LLP
Washington, D.C.
Shareholders' Information
Shareholder requests for information or assistance,
please write or call our corporate office.
Danaher Corporation
c/o Investor Relations
1250 24th Street, N.W. Suite 800
Washington, D.C. 20037
(202) 828-0850
Internet Address: http://www.danaher.com
Stock Listing
Symbol: DHR
New York and Pacific Stock Exchanges
Transfer Agent
ChaseMellon Shareholder Services, LLC
Pittsburgh, Pennsylvania
Form 10-K
A copy of the Annual Report to the Securities and Exchange Commission
on Form 10-K may be obtained by writing to Danaher Corporation
MARKET PRICES OF COMMON STOCK
1996 1995
High Low High Low
First Quarter . . . . . 37 1/4 29 1/2 29 7/8 24 1/4
Second Quarter . . .. . 43 1/2 36 1/8 32 26 3/8
Third Quarter. . . .. . 43 1/8 36 1/8 34 3/8 30 1/4
Fourth Quarter. . .. . 46 5/8 40 1/2 33 1/4 30 1/4
High and low per share data are as quoted on the New York Stock Exchange.