DANAHER CORPORATION
1997 ANNUAL REPORT
SELECTED FINANCIAL DATA
(000's omitted except per share data)
_____________________________________________________________
1997 1996 1995 1994 1993
Sales $2,050,968 $1,811,878 $1,486,769 $1,113,973 $937,633
Operating
profit 266,885 226,136 180,257 124,427 87,058
Earnings from
continuing
operations 154,806 127,959 105,766 72,319 48,030
Per share
Diluted 2.57 2.13 1.77 1.24 0.83
Basic 2.63 2.18 1.80 1.26 0.84
Discontinued
operations -- 79,811 2,550 9,331 5,719
Per share
Diluted -- 1.33 0.04 0.16 0.10
Basic -- 1.36 0.04 0.16 0.10
Earnings before
cumulative effect
of accounting
change 154,806 207,770 108,316 81,650 53,749
Per share
Diluted 2.57 3.47 1.81 1.40 0.93
Basic 2.63 3.54 1.85 1.42 0.94
Cumulative effect
of accounting
change* -- -- -- -- (36,000)
Per share*
Diluted -- -- -- -- (0.62)
Basic -- -- -- -- (0.63)
Net earnings 154,806 207,770 108,316 81,650 17,749
Earnings per
common share
Diluted 2.57 3.47 1.81 1.40 0.31
Basic 2.63 3.54 1.85 1.42 0.31
Dividends
declared 5,887 5,360 4,672 3,710 3,412
Dividends
per share 0.10 0.09 0.08 0.07 0.06
Total assets 1,879,717 1,765,074 1,485,991 1,105,645 872,472
Total debt 198,247 236,327 283,587 185,286 133,585
* 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 (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 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 58.2% $1,103,443 60.9% $1,005,005 67.6%
Process/
Environmental
Controls 858,207 41.8 708,435 39.1 481,764 32.4
$2,050,968 100.0% $1,811,878 100.0% $1,486,769 100.0%
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, 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 the 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 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 21% 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 14% of the increase. Of the remaining increase, higher unit
volume contributed 8% and increased average pricing provided 1%, while
foreign currency translation resulted in a 2% decrease. Operating
margins increased from 15.8% to 16.0% as productivity and efficiency
enhancements offset the lower operating margins of the acquired
businesses.
1996 COMPARED TO 1995
Sales 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.
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 32.6%, a 1.0
point increase compared to the 31.6% achieved in 1996. Productivity
improvements, combined with increased fixed cost leverage, resulted in
margin improvement. A shift in product mix associated with the
acquisitions also increased 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.
Operating Expenses
Selling, general and administrative expenses for 1997 as a
percentage of sales were approximately 0.5 percentage points higher than
the 1996 level. This reflects higher cost ratios in the businesses
acquired, and selective investments in marketing and research and
development for future growth.
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 1995.
Interest Costs and Financing Transactions
The Company 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
20% lower than in 1996 due to substantial cash flow generated from
operations. Interest expense in 1996 was $9.2 million higher than in
1995 as average borrowing levels increased due to acquisitions.
Income Taxes
The 1997 effective tax rate of 39.0% is consistent with 1996. The
0.1 percentage point increase in 1996 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.
Inflation and Other
The effect of inflation on the Company's operations has been minimal
in 1997, 1996, and 1995. The Company has conducted a review of the
impact of Year 2000 on its information systems, as well as reviewing its
impact on relationships with key customers and vendors. Based on this
review, a plan to ensure minimal disruption to Company operations has
been developed and is currently being implemented. The costs associated
with this program are not expected to be material.
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 $278 million, $217 million and $174 million in cash
in 1997, 1996 and 1995, respectively. The principal use of funds has
been capital expenditures of $63 million, $51 million and $59 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 $38 million in 1997, $48
million in 1996, and an increase of $98 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.
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 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, 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.
January 29, 1998
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except share and per share data)
Year Ended December 31,
1997 1996 1995
Sales. . . . . . . $2,050,968 $1,811,878 $1,486,769
Cost of sales . . . 1,382,475 1,239,846 1,039,622
Selling, general
and administrative
expenses. . . . . 401,608 345,896 266,890
Total operating
expenses. . . . . 1,784,083 1,585,742 1,306,512
Operating profit. . 266,885 226,136 180,257
Interest expense. . 13,104 16,376 7,198
Earnings from
continuing operations
before income taxes . 253,781 209,760 173,059
Income taxes. . . . . 98,975 81,801 67,293
Earnings from continuing
operations . . . . . 154,806 127,959 105,766
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. . . . . . $ 154,806 $ 207,770 $ 108,316
Basic earnings per share:
Continuing operations $2.63 $2.18 $1.80
Discontinued operations -- 1.36 .04
Net earnings $2.63 $3.54 $1.85
Average shares
outstanding 58,769,164 58,623,470 58,661,849
Diluted earnings per share:
Continuing operations $2.57 $2.13 $1.77
Discontinued operations -- 1.33 .04
Net earnings $2.57 $3.47 $1.81
Average common stock
and common equivalent
shares outstanding . . 60,256,475 59,954,636 59,862,673
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 1997 1996
Current assets:
Cash and equivalents . . $ 33,317 $ 26,444
Trade accounts receivable,
less allowance for doubtful
accounts of $18,510 and
$14,868 . . . . . . . . . . 322,600 266,668
Inventories. . . . . . . . . 209,416 204,236
Prepaid expenses and other. . 53,006 49,393
Total current assets . . . 618,339 546,741
Property, plant and equipment,
net. . . . . . . . . . . . . 335,223 319,606
Other assets . .. . . . . . . 72,739 105,903
Excess of cost over net assets
of acquired companies, less
accumulated amortization of
$116,357 and $92,583 . . . . 853,416 792,824
$1,879,717 $1,765,074
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
portion of debt . . . . . . . $ 35,527 $ 16,757
Trade accounts payable. . . . 135,190 110,194
Accrued expenses . . . . . . . 353,518 347,622
Total current liabilities. . 524,235 474,573
Other liabilities. . . . . . . 275,881 270,670
Long-term debt .. . . . . . . . 162,720 219,570
Stockholders' equity:
Common stock, one cent par value;
125,000,000 shares authorized;
64,275,868 and 64,186,673
issued; 58,478,262 and 58,889,067
outstanding. . . . . . . . . . . 643 642
Additional paid-in capital. . . . 336,109 333,587
Cumulative foreign translation
adjustment and other . . . . . . (6,122) 8,858
Retained earnings. . . . . . . . 655,692 506,773
Treasury stock, at cost;
5,797,606 and 5,297,606 shares. (69,441) (49,599)
Total stockholders' equity. . 916,881 800,261
$1,879,717 $1,765,074
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,
1997 1996 1995
Cash flows from
operating activities:
Earnings from continuing
operations . . . . . . . . . . $154,806 $127,959 $105,766
Earnings from discontinued
operations . . . . . . . . . . -- -- 2,550
Depreciation and
amortization. . . . . . . . . . 76,116 68,626 58,527
Increase in accounts
receivable. . . . . . . . . . . (46,175) (11,818) (20,098)
(Increase) decrease in
inventories . . . . . . . . . . 14,691 38,866 (15,589)
Increase in accounts payable. . . 19,579 10,385 626
Change in other assets and
liabilities. . . . . . . . . . . 59,355 (16,904) 42,374
Total operating cash flows. . . 278,372 217,114 174,156
Cash flows from investing activities:
Payments for additions to
property, plant and equipment,
net . . . . . . . . . . . . . . (62,808) (51,255) (59,172)
Sale of Fayette Tubular Products . -- 155,000 --
Net cash paid for acquisitions (147,238) (246,427) (207,941)
Net cash used in investing
activities . . . . . . . . . (210,046) (142,682) (267,113)
Cash flows from financing activities:
Proceeds from issuance of
common stock. . . .. . . . . . . 2,523 9,507 3,559
Dividends paid .. . . . . . . . . (5,887) (5,065) (4,672)
Borrowings(repayments) of debt . .(38,080) (48,407) 98,301
Purchase of common stock . . . . .(19,842) (12,110) --
Net cash provided by(used in)
financing activities. . . . . (61,286) (56,075) 97,188
Effect of exchange rate
changes on cash. . . . . . . . . (167) 149 108
Net change in cash and
equivalents. . . . . . . . . . . 6,873 18,506 4,339
Beginning balance of cash
and equivalents. . .. . . . . . 26,444 7,938 3,599
Ending balance of cash
and equivalents . . . .. . . . . $33,317 $26,444 $ 7,938
Supplemental disclosures:
Cash interest payments. . . . $13,666 $16,981 $13,699
Cash income tax payments . . . $66,588 $80,152 $69,853
Common stock issued for
acquisitions . . . . . . . . $ -- $ 8,883 $ --
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)
Common Stock Additional
Shares Amount Paid-in Capital
Balance, December 31, 1994 63,198,208 $ 632 $ 311,648
Net earnings for
the year. . . . . . - - -
Dividends declared. . - - -
Common stock issued
for options
exercised. . . . . . 208,006 2 3,557
Increase from
translation of
foreign financial
statements. . . . . . - - -
Balance, December 31, 1995 63,406,214 634 315,205
Net earnings for
the year. . . . . . . 207,770
Dividends declared. . . (5,360)
Common stock issued
for options
exercised. . . . . . 483,233 5 9,502
Purchase of common
stock . . . .. . . . .
Unrealized gain on
securities held. . . . - - -
Common stock issued
for acquisitions . . . 297,226 3 8,880
Increase from
translation of
foreign financial
statements. . . . . .
Balance, December 31, 1996 64,186,673 642 333,587
Net earnings for
the year. . . . . .
Dividends declared. .
Common stock issued
for options
exercised. . . . . 89,195 1 2,522
Purchase of common
stock . .. . . . . .
Decrease from
translation of
foreign financial
statements. .. . . .
Unrealized gain on
securities held . .
Sale of securities held . .
Balance, December 31, 1997 64,275,868 $ 643 $ 336,109
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 Treasury Translation Adjustment
Earnings Stock and Other
Balance, December 31, 1994 $ 200,719 $ (37,489) $ 590
Net earnings for
the year. . . . . . 108,316 - -
Dividends declared. . (4,672) - -
Common stock issued
for options
exercised. . . . . . - - -
Increase from
translation of
foreign financial
statements. . . . . . - - 3,008
Balance, December 31, 1995 304,363 (37,489) 3,598
Net earnings for
the year. . . . . . . 207,770
Dividends declared. . . (5,360)
Common stock issued
for options
exercised. . . . . .
Purchase of common
stock . . . .. . . . . (12,110)
Unrealized gain on
securities held. . . . - - 4,000
Common stock issued
for acquisitions . . . - - -
Increase from
translation of
foreign financial
statements. . . . . . 1,260
Balance, December 31, 1996 506,773 (49,599) 8,858
Net earnings for
the year. . . . . . 154,806
Dividends declared. . (5,887)
Common stock issued
for options
exercised. . . . .
Purchase of common
stock . .. . . . . . (19,842)
Decrease from
translation of
foreign financial
statements. .. . . . (12,680)
Unrealized gain on
securities held . . 1,700
Sale of securities held . . (4,000)
Balance, December 31, 1997 $ 655,692 $ (69,441) $ (6,122)
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 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. $23,774,000,
$20,458,000 and $14,482,000 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.
Comprehensive Income - The total of net income and all other nonowner
changes in equity consists of:
Year Ended December 31,
1997 1996 1995
Net Income $154,806 $207,770 $108,316
Other Comprehensive Income:
Currency Translation (12,680) 1,260 3,008
Unrealized gains on securities:
Arising during year 1,700 4,000 --
Included in net income (3,500) -- --
(14,480) 5,260 3,008
Comprehensive Income $140,326 $213,030 $111,324
(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 was approximately $240
million, including $140 million of excess cost over net assets acquired,
and approximately $40 million of liabilities were assumed. The
transaction was accounted for as a purchase.
The unaudited pro forma information for the period set forth below
gives effect to this transaction as if it had occurred at the beginning of
the period. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisition been
consummated as of that time (unaudited, 000's omitted):
Year Ended
December 31, 1996
Net Sales . . . . . . . . . .. . . . . . . . . . . . . .$ 1,885,700
Net Earnings from continuing operations . . . . . . . . . 129,197
Earnings per share from continuing operations (diluted). . $ 2.15
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. . . . . . . . $ 82,451 $ 88,083
Work in process. . . . .. . . 54,544 49,681
Raw material . . . . . .. . . 72,421 66,472
$ 209,416 $ 204,236
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 . . . . . $ 19,369 $ 17,457
Buildings . . . . . . . . . . . 112,629 107,343
Machinery and equipment.. . . . 466,452 413,636
598,450 538,436
Less accumulated depreciation. . (263,227) (218,830)
Property, plant and equipment. . $ 335,223 $ 319,606
(5) Financing:
Financing consists of the following (000's omitted):
December 31, 1997 December 31, 1996
Notes payable . . . . . . . . $ 85,900 $ 100,600
Other . . . . . . . . . . . . 112,347 135,727
198,247 236,327
Less-currently payable. . . . 35,527 16,757
$162,720 $ 219,570
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 - $35,527,000; 1999 - $43,010,000; 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. . . $ 44,908 $ 35,284 $ 43,380 $ 34,022
Insurance, including self
insurance . . . . . . . . . 7,867 58,160 9,992 48,372
Post retirement benefits. . 5,000 75,553 5,000 71,819
Environmental compliance . . 27,729 49,296 29,725 52,866
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.. $131,578 $56,216 $55,587
Accumulated benefit
obligation. . . . . . . . 136,087 57,637 58,371
Projected benefit obligation.. 136,087 57,650 58,371
Fair value of plan assets
(consisting of stocks, bonds
and temporary cash
investments) . . . . . . . . 166,743 79,226 55,040
Projected benefit obligation
(in excess of) or less than
plan assets. . . . . . . . . 30,656 21,576 (3,331)
Unrecognized net (gain) loss.. (22,927) (14,360) 4,257
Unrecognized net asset . . . . (1,359) (487) (1,129)
Pension (liability) prepaid
recognized in the balance
sheet. . . . . . . . . . . . . $ 6,370 $ 6,729 $ (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 $21,269,000, $16,754,000
and $11,870,000 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 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 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
(average $20.35 per share) 3,655,235
Granted (average $49.56 per share) 1,601,900
Exercised (average $15.25 per share) (89,195)
Cancelled (104,700)
Outstanding at December 31, 1997 (at
$5.94 to $60.19 per share, average
$29.72 per share) 5,063,240
As of December 31, 1997, options with a weighted average remaining
life of 4.6 years covering 2,357,086 shares were exercisable at $5.94 to
$45.63 per share (average $15.20 per share) and options covering 1,452,000
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
$5.94 to $8.50 810,350 $6.70 2 years 810,350 $6.70
$9.00 to $13.50 700,626 $12.12 5 years 615,626 $11.93
$14.94 to $22.25 523,884 $17.65 6 years 413,916 $17.61
$22.63 to $28.88 574,360 $26.33 7 years 283,816 $25.79
$31.13 to $45.63 1,472,920 $40.84 9 years 233,378 $36.54
$45.88 to $60.19 981,100 $53.41 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 $13 per share in
1995, $15 per share in 1996 and $20 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 $.09 in 1997 and $.02
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 $17,110,000 in 1998,
$14,584,000 in 1999, $10,559,000 in 2000, $7,625,000 in 2001, $6,529,000
in 2002 and $16,260,000 thereafter. Total rent expense charged to income
for all operating leases was $18,341,000, $16,009,000 and $16,067,000 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. . . . . . . $85,653 $62,908 $62,225
State and local. . . 10,625 5,000 7,000
Foreign. . . . . . . 4,800 7,000 4,000
Total current ... $101,078 $74,908 $73,225
Deferred:
Federal. . . . . . . (1,963) 6,449 (5,917)
Other . . . . . . . (140) 444 (15)
Total deferred . . (2,103) 6,893 (5,932)
Income tax provision . . $98,975 $81,801 $67,293
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 .. . .. . $ 6,386 $ 5,505
Inventories . . .. . . . . . (773) (171)
Property, plant and equipment. (32,470) (29,100)
Post retirement benefits. .. . 32,319 30,552
Insurance, including self
insurance . . . . . .. . . . 21,755 18,920
Environmental compliance . . . 26,043 28,102
Other accruals . . . . . . . . 41,730 42,559
All other accounts . . . . . . (1,341) (4,793)
Operating loss carryforwards . -- 8,265
Gross deferred tax asset. . . 93,649 99,839
Valuation allowances. .. . . . -- (8,265)
Net deferred tax asset . . . . $ 93,649 $ 91,574
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. . . 3.7 3.4 2.9
State income taxes (net of Federal
income tax benefit).. . . . . . . . . 2.7 1.6 2.6
Taxes on foreign earnings. . . . . . . (2.4) (1.0) (1.6)
Effective income tax rate. . . . . . . 39.0% 39.0% 38.9%
(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 13%, 14% and 16%
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 858,207 708,435 481,764
$2,050,968 $1,811,878 $1,486,769
Operating Profit:
Tools and Components $ 144,370 $ 128,118 $ 112,981
Process/Environmental Controls 136,970 112,243 80,804
Other (14,455) (14,225) (13,528)
$ 266,885 $ 226,136 $ 180,257
Identifiable Assets:
Tools and Components $ 832,614 $ 861,345 $ 821,604
Process/Environmental Controls 960,226 849,199 599,466
Other 86,877 54,530 64,921
$1,879,717 $1,765,074 $1,485,991
Depreciation and Amortization:
Tools and Components $ 44,908 $ 40,237 $ 35,211
Process/Environmental Controls 31,208 28,389 23,316
$ 76,116 $ 68,626 $ 58,527
Capital Expenditures:
Tools and Components $ 38,304 $ 31,346 $ 48,500
Process/Environmental Controls 24,504 19,909 10,672
$ 62,808 $ 51,255 $ 59,172
Operations in Geographical Areas -
Year Ended December 31,
1997 1996 1995
Total Sales:
United States. . . . . . . . . $1,727,086 $1,565,110 $1,235,933
Europe . . . . . . . . . . . . 222,245 205,416 205,228
Other.. . . . . . . . . . . . . 101,637 41,352 45,608
$2,050,968 $1,811,878 $1,486,769
Operating Profit:
United States. . . . . . . . . $ 234,662 $ 207,433 $ 156,170
Europe . . . . . . . . . . . . 21,959 15,107 20,348
Other. . . . . . . . . . . . . 10,264 3,596 3,739
$ 266,885 $ 226,136 $ 180,257
Identifiable Assets:
United States. . . . . . . . . $1,521,393 $1,552,665 $1,292,166
Europe . . . . . . . . . . . . 281,701 188,660 173,949
Other. . . . . . . . . . . . . 76,623 23,749 19,876
1,879,717 $ 1,765,074 $1,485,991
Sales outside United States:
Direct Sales . . . . . . . . . .$ 323,882 $ 246,768 $ 250,836
Exports . . . . . . . . . . . . 163,000 144,000 107,000
$ 486,882 $ 390,768 $ 357,836
(13) Quarterly Data-Unaudited (000's omitted except per share data)
1997
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net sales . . . . . $ 466,441 $ 502,789 $ 516,601 $ 565,137
Gross profit. . . . 147,480 164,064 173,134 183,815
Operating profit. . 55,457 65,942 71,383 74,103
Net earnings. . . . 31,535 38,258 41,781 43,232
Earnings per share:
Basic. . . . . . . $ .53 $ .65 $ .71 $ .74
Diluted. . . . . . $ .52 $ .64 $ .69 $ .72
1996
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Net sales . . . .. . $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
Basic earnings per share:
Continuing operations $ .46 $ .56 $ .57 $ .59
Discontinued operations 1.37 - - -
Net earnings $1.83 $ .56 $ .57 $ .59
Diluted earnings per share:
Continuing operations $ .45 $ .54 $ .56 $ .58
Discontinued operations 1.34 - - -
Net earnings $1.79 $ .54 $ .56 $ .58
Danaher Corporation and Subsidiaries
Operating Executives
A.L. Hyde Company
Richard L. Garthwaite
President
American Sigma, Inc.
Richard W. Wissenbach
President
Communications Technology
Corporation
Benjamin W. Jeffrey
President
Current Technology,
Inc./Joslyn Electronic
Systems Company
Walter D. Rogers, Jr.
President
Cyberex, Inc.
H. Lawrence Culp, Jr.
Acting President
Danaher Controls
James W. Appelgren
President
Danaher Tool Group
Asian Division
C. Michael Heath
President
Danaher Tool Group
Professional Tools
Division
Jake R. Nichol
President
Danaher Tool Group
Special Markets Division
Thomas R. Sulentic
President
Delta Consolidated
Industries
Thomas P. Joyce, Jr.
President
Gems Sensors
R.J. Pabers
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.
William J. Butler
President
Jennings Technology
Company
John P. Williamson
President
Joslyn Hi-Voltage Company
James F. Domo
President
Joslyn Manufacturing
Company
Gary P. Prasser
President
Joslyn Sunbank Company
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/West Corporation
Craig B. Purse
President
QualiTROL Corporation
Ronald N. Meyer
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
Mark C. DeLuzio
Vice President - Danaher
Business System
James H. Ditkoff
Vice President - Finance &
Tax
Dennis A. Longo
Vice President - Human
Resources
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
1997 1996
High Low High Low
First Quarter... 50 41 5/8 37 1/4 29 1/2
Second Quarter... 51 7/8 39 5/8 43 1/2 36 1/8
Third Quarter... 58 7/16 49 13/16 43 1/8 36 1/8
Fourth Quarter... 63 3/4 53 7/16 46 5/8 40 1/2
High and low per share data are as quoted on the New York Stock Exchange.