How much did Danaher's earnings actually grow in 1994, given the accounting change in 1993?

Reported net earnings rose from $17.7 million in 1993 to $81.7 million in 1994, a 360% increase. However, 1993 included a $36 million after-tax, non-cash cumulative effect charge from adopting SFAS 106 for post-retirement benefits. Excluding that charge, earnings before the accounting change grew 52%, from $53.7 million to $81.7 million. Per-share figures are adjusted for the January 1995 two-for-one stock split.

How dependent is Danaher on a single customer?

Quite dependent. Sears, Roebuck and Co. accounted for 17% of consolidated 1994 sales, and the company says losing this business could have an adverse effect on operations. The Tools segment supplies Sears' Craftsman line under a five-year evergreen agreement. The filing describes the relationship as long-standing, but it remains a concentration risk.

What is the company's main legal exposure?

A former subsidiary, sold in 1987, faces product liability suits over air tools in six states, involving about 3,000 plaintiffs. Danaher agreed to indemnify the buyer for tools made before June 4, 1987, with a maximum obligation of about $85 million. Management believes insurance covers all or a substantial part of any damages and that the outcome is not currently predictable. The company also says that, in its view, this and other pending litigation would not have a material adverse effect on its financial condition.

What drove growth in the Transportation segment, and is it cyclical?

Transportation revenue rose 23% to $403 million, driven by higher automobile and heavy-diesel truck build rates in North America and by increased engine retarder sales outside North America, including to a major Japanese truck maker. Operating margin improved to 11% from 7%, although a nonrecurring charge tied to consolidating wheel service equipment plants partly offset the gain. The filing acknowledges the segment is cyclical and says the company is trying to reduce that exposure by broadening its customer base.

How is the company funding its growth, and how strong is its balance sheet?

Acquisitions were funded with about $136 million of cash plus $31 million in common stock, and total debt increased to $185 million. About $130 million of debt is fixed-rate notes at an average cost of 7.2%, with principal payments beginning in December 1995. The $200 million revolving credit facility was undrawn at year-end and runs through August 1997. Equity increased to $476 million, and the company reports that operating cash flow and existing credit lines should cover working capital, capital expenditures, dividends, and debt service for the foreseeable future.

DHR 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 23, 1995. Cited figures are marked; the original filing is the authoritative source.

Danaher Corporation's fiscal 1994 10-K shows a company with strong top-line growth and substantially improved profitability.

Net revenues rose 19.8% to $1.29 billion^a from $1.08 billion, and operating profit increased 44% to $145.8 million, lifting the operating margin to 11.3% from 9.4%. Gross margin expanded 1.3 points to 27.5%, and SG&A fell to 16.2% of sales, which management attributes to productivity gains, cost reductions, and volume leverage. Earnings before the 1993 accounting change grew 52% to $81.7 million.

Reported 1994 EPS of $1.40^b reflects the January 1995 two-for-one stock split, and the comparison with 1993's $0.31 is distorted by a $36 million non-cash charge for post-retirement benefit accounting (SFAS 106) in 1993. Growth came from all three segments and was driven largely by volume. Tools (45% of sales) grew 16%, Process/Environmental Controls grew 24% on strong demand for underground storage tank leak detection systems, and Transportation grew 23% on a cyclical rebound in automotive and heavy-truck markets.

Growth was also supported by acquisitions totaling about $167 million^c, including Delta Consolidated Industries, Hengstler GmbH, and Armstrong Brothers Tool. Hengstler closed on December 30, 1994, so its results are not in 1994 figures, and the other acquisitions contributed little to 1994 results because most closed in the fourth quarter. The balance sheet and cash flow remain manageable but show higher leverage.

Total assets grew to $1.13 billion and total debt rose to $185 million^d, while equity increased to $476 million. Operating cash flow of $144 million covered $55 million of capital expenditures, though acquisitions required net new borrowing. Key risks for investors include customer concentration (Sears accounted for 17% of sales), cyclicality in the Transportation segment, and a product liability indemnification tied to a former subsidiary's air tools, with about 3,000 plaintiffs and maximum exposure of roughly $85 million that management believes is substantially insured.

02—Key points

Key Highlights

Net revenues rose 19.8% to $1,288.7 million in 1994, with growth in all three segments: Tools +16%, Process/Environmental Controls +24%, and Transportation +23%.
Operating profit increased 43.8% to $145.8 million, expanding the operating margin to 11.3% from 9.4% in 1993.
Earnings before the 1993 accounting change rose 52% to $81.7 million ($1.40 per share post-split), versus $53.7 million in 1993. Reported 1993 net earnings were depressed to $17.7 million by a $36 million SFAS 106 charge.
Gross margin improved to 27.5% from 26.2%, and SG&A declined to 16.2% of sales, reflecting productivity gains and fixed-cost leverage.
The Process/Environmental Controls segment earned the highest margin, with operating profit of $56.6 million on $304.0 million of revenue (about 18.6%), supported by demand for Veeder-Root leak detection systems.
Acquisitions totaled roughly $167 million in 1994, including Delta Consolidated Industries, Hengstler GmbH, and Armstrong Brothers Tool, with about $240 million of acquired assets and $220 million in combined annual sales.
Total debt rose to $185.3 million from $133.6 million, and the $200 million revolving credit facility was fully unused at year-end. Operating cash flow was $144.4 million versus $capital expenditures of $54.5 million.

03—Questions

Frequently Asked Questions

How much did Danaher's earnings actually grow in 1994, given the accounting change in 1993?
Reported net earnings rose from $17.7 million in 1993 to $81.7 million in 1994, a 360% increase. However, 1993 included a $36 million after-tax, non-cash cumulative effect charge from adopting SFAS 106 for post-retirement benefits. Excluding that charge, earnings before the accounting change grew 52%, from $53.7 million to $81.7 million. Per-share figures are adjusted for the January 1995 two-for-one stock split.
How dependent is Danaher on a single customer?
Quite dependent. Sears, Roebuck and Co. accounted for 17% of consolidated 1994 sales, and the company says losing this business could have an adverse effect on operations. The Tools segment supplies Sears' Craftsman line under a five-year evergreen agreement. The filing describes the relationship as long-standing, but it remains a concentration risk.
What is the company's main legal exposure?
A former subsidiary, sold in 1987, faces product liability suits over air tools in six states, involving about 3,000 plaintiffs. Danaher agreed to indemnify the buyer for tools made before June 4, 1987, with a maximum obligation of about $85 million. Management believes insurance covers all or a substantial part of any damages and that the outcome is not currently predictable. The company also says that, in its view, this and other pending litigation would not have a material adverse effect on its financial condition.
What drove growth in the Transportation segment, and is it cyclical?
Transportation revenue rose 23% to $403 million, driven by higher automobile and heavy-diesel truck build rates in North America and by increased engine retarder sales outside North America, including to a major Japanese truck maker. Operating margin improved to 11% from 7%, although a nonrecurring charge tied to consolidating wheel service equipment plants partly offset the gain. The filing acknowledges the segment is cyclical and says the company is trying to reduce that exposure by broadening its customer base.
How is the company funding its growth, and how strong is its balance sheet?
Acquisitions were funded with about $136 million of cash plus $31 million in common stock, and total debt increased to $185 million. About $130 million of debt is fixed-rate notes at an average cost of 7.2%, with principal payments beginning in December 1995. The $200 million revolving credit facility was undrawn at year-end and runs through August 1997. Equity increased to $476 million, and the company reports that operating cash flow and existing credit lines should cover working capital, capital expenditures, dividends, and debt service for the foreseeable future.

04—Continue

← View all 10-K filings