01—Abstract
Summary
Summary of the 10-K/A filed September 13, 1996. Cited figures are marked; the original filing is the authoritative source.
Danaher Corporation's 1995 annual results show strong growth driven by acquisitions and operating leverage.
Net revenues rose 33% to $1.49 billiona from $1.11 billion, and operating profit rose 45% to $180.3 million, lifting the operating margin from 11.2% to 12.1%. Net earnings increased 33% to $108.3 million, or $1.81 per share, from $81.7 million, or $1.40 per share. Gross margin improved to about 30.1% from 28.9%.
Much of the growth came from the September 1995 Joslyn Corporation acquisition (about $245 millionb) and 1994 acquisitions. Operating cash flow grew to $174.2 million, but capital spending nearly doubled to $59.2 million, and total debt increased to $283.6 million from $185.3 million. The balance sheet and portfolio changes matter for investors.
Long-term debt rose to $268.6 millionc, and the company agreed in December 1995 to sell Fayette Tubular Products for about $155 million. Management expects a pre-tax gain of about $80 million in the first quarter of 1996, and the proceeds were earmarked to repay substantially all remaining short-term debt. Fayette is now reported as discontinued operations.
The Tools and Components segment remains the largest business at $1.0 billiond in revenue, with a 16% customer concentration, while Process/Environmental Controls grew to $482 million in revenue with a higher 16.8% operating margin. The main risk factors are environmental and litigation exposures. Environmental compliance accruals jumped to $88.2 million from $11.6 million, largely due to the Joslyn wood-treating sites, and the company states that estimates may change.
Product liability claims tied to former air tool operations involve about 3,000 plaintiffs, with a maximum indemnification obligation of about $85 million that the company believes is substantially insured. Management states that pending legal matters are not expected to have a materially adverse effect on financial condition, but a class action tied to Joslyn's Louisiana site cannot yet be quantified.
02—Key points
Key Highlights
- Net revenues grew 33.4% to $1,486.8 million in 1995, supported by the Joslyn acquisition and 1994 acquisitions.
- Operating profit rose 44.9% to $180.3 million, and operating margin expanded to about 12.1% from 11.2%.
- Net earnings increased 32.7% to $108.3 million, or $1.81 per diluted-equivalent share, versus $1.40 in 1994.
- Fayette Tubular Products sale for about $155 million, with an expected roughly $80 million pre-tax gain in Q1 1996, is being used to retire debt.
- Process/Environmental Controls segment grew revenue 58% to $481.8 million with an operating margin of about 16.8%, outpacing Tools and Components at about 11.2%.
- Environmental compliance accruals increased to $88.2 million from $11.6 million, and product liability and class action exposures remain unresolved.
- Operating cash flow rose to $174.2 million, but capital expenditures nearly doubled to $59.2 million and total debt increased to $283.6 million.
03—Questions
Frequently Asked Questions
How did Danaher's earnings and profitability change in 1995?
Net earnings rose to $108.3 million, or $1.81 per share, from $81.7 million, or $1.40 per share, in 1994. Operating profit grew faster than revenue, rising 44.9% to $180.3 million, which reflects better operating leverage and a gross margin increase to roughly 30.1%. The effective tax rate was 38.9%, down from 40.3%.
What is the impact of the Fayette sale on future results?
Fayette Tubular Products was sold for about $155 million after the Transportation segment was exited. Its results are reported as discontinued operations, which had $155 million in revenue in 1995. Management expects an approximately $80 million pre-tax gain in Q1 1996. Sale proceeds were expected to repay substantially all other debt, which should lower interest expense going forward, though the company's long-term debt was still $268.6 million at year-end 1995.
What are the main legal and environmental risks disclosed?
Danaher faces product liability litigation involving about 3,000 plaintiffs related to air tools made by a former subsidiary sold in 1987, with an indemnification cap of about $85 million that the company says is largely insured. Joslyn Manufacturing faces environmental remediation at former wood-treating sites, and environmental accruals rose to $88.2 million. A class action tort suit over a Louisiana site has an undetermined potential liability. Management says these matters should not have a materially adverse effect on financial condition, but outcomes are uncertain.
How strong is the company's cash generation and balance sheet?
Operating cash flow increased to $174.2 million from $140.4 million, which supported capital spending of $59.2 million and acquisition payments of about $231 million net of cash acquired. Total debt rose to $283.6 million from $185.3 million, and stockholders' equity increased to $586.3 million from $476.1 million. Cash on hand was modest at $7.9 million, so the company relied on its $250 million revolving credit facility and the pending Fayette proceeds for liquidity.
Which business segments drive Danaher's results?
Tools and Components generated $1,005.0 million in revenue and $113.0 million in operating profit, with a customer representing about 16% of total sales. Process/Environmental Controls generated $481.8 million in revenue and $80.8 million in operating profit, with a higher margin and faster growth, partly from the Joslyn acquisition. Geographically, the United States accounted for about 83% of revenue, while Europe grew sharply to $205.2 million from $77.1 million.
04—Continue