What drove Danaher's revenue growth in 1995?

Most of the growth came from acquisitions. Joslyn (September 1995) and Hengstler contributed heavily, particularly in Process/Environmental Controls, where acquisitions accounted for 52 of the 58% segment revenue increase. In Tools and Components, acquisitions added 17 points of the 24% increase, while higher volumes added 6 points and pricing added 1 point.

Is the company's profitability improving or being diluted by acquisitions?

Both. Consolidated gross margin improved to 30.1% and Tools and Components operating profit rose 39% on process improvements. However, Process/Environmental Controls operating margin fell from 18.6% to 16.8%, entirely due to the Hengstler and Joslyn acquisitions, which carry lower margins than the base business. The base business in that segment showed a modest margin increase.

How much of 1995 earnings are one-time or non-recurring?

Earnings are not clearly inflated by one-offs in 1995. Discontinued operations (Fayette) contributed only $2.6 million, or $0.04 per share. The roughly $80 million gain on the Fayette sale is expected in Q1 1996, not 1995, so investors should expect a significant one-time boost to 1996 results. The 1993 results included a $36 million accounting-change charge, which is not relevant to 1995.

Can Danaher service its debt and fund growth?

Management believes so. Operations generated $174 million in 1995, versus $59 million of capex. The company has a $250 million unused revolver, and roughly $115 million of its debt is fixed at a 7.3% average rate. Most remaining borrowings are short-term and float with base rates, so rising interest rates would raise interest costs. Interest expense rose 125% in 1995 as borrowing increased to fund acquisitions.

What is the outlook for the Fayette sale and future portfolio direction?

Danaher exited the Transportation segment by agreeing in December 1995 to sell Fayette Tubular Products for $155 million, closing in January 1996. The company is focusing on its two remaining segments, Tools and Components and Process/Environmental Controls, and is growing through acquisitions in both. The filing does not provide explicit forward guidance beyond the statement that existing funding should be sufficient for the foreseeable future.

DHR 10-K Filed Oct 8, 1996

01—Abstract

Summary

Summary of the 10-K/A filed October 8, 1996. Cited figures are marked; the original filing is the authoritative source.

Danaher Corporation's 1995 Annual Report shows a company in strong growth mode, driven primarily by acquisitions.

Net revenues rose 33% to $1.487 billion^a in 1995 from $1.114 billion in 1994, while operating profit increased 45% to $180.3 million. Earnings before the cumulative effect of accounting change reached $108.3 million, or $1.81 per share, up from $1.40 per share in 1994, a 29% increase. Net earnings were $108.3 million, with continuing operations and discontinued operations (Fayette Tubular Products) both contributing.

Growth was concentrated in two segments. Tools and Components revenue grew 24% to $1.005 billion^b, with operating profit up 39%, reflecting manufacturing process improvements and the Joslyn acquisition. Process/Environmental Controls revenue grew 58% to $482 million, with acquisitions (notably Hengstler and Joslyn) contributing 52 points of the increase, though segment operating margin fell from 18.6% to 16.8% due to those deals.

Gross margin improved 1.2 points to 30.1%, and the effective tax rate fell to 38.9%. The balance sheet took on more leverage to fund roughly $245 million^c for Joslyn and other acquisitions. Operations generated $174 million in cash, against $59 million of capital expenditures and $231 million of acquisition spending, and debt rose $98 million.

Management states that internal cash flow, its $250 million^d unused revolver and available credit lines should cover working capital, capex, dividends and debt service for the foreseeable future. The Fayette sale for $155 million closed in January 1996, with an expected gain of about $80 million in the first quarter of 1996.

02—Key points

Key Highlights

Net revenues grew 33% to $1,486.8 million in 1995, with acquisitions a major contributor (Tools and Components: 17 points; Process/Environmental Controls: 52 points)
Earnings per share rose to $1.81 from $1.40 (up about 29%), and operating profit increased 45% to $180.3 million
Gross margin improved 1.2 points to 30.1%, driven by productivity gains, fixed-cost leverage and acquisition product mix
Joslyn Corporation was acquired in September 1995 for about $245 million in cash, and Fayette Tubular Products was sold for $155 million (closed January 1996)
Expected gain of approximately $80 million on the Fayette sale to be recognized in Q1 1996, which will boost near-term reported earnings
Operating cash flow rose to $174 million, but acquisition spending of $231 million pushed total debt up $98 million
Liquidity remains supported by a $250 million unused revolving credit facility, and the company paid $0.08 per share in dividends in 1995

03—Questions

Frequently Asked Questions

What drove Danaher's revenue growth in 1995?
Most of the growth came from acquisitions. Joslyn (September 1995) and Hengstler contributed heavily, particularly in Process/Environmental Controls, where acquisitions accounted for 52 of the 58% segment revenue increase. In Tools and Components, acquisitions added 17 points of the 24% increase, while higher volumes added 6 points and pricing added 1 point.
Is the company's profitability improving or being diluted by acquisitions?
Both. Consolidated gross margin improved to 30.1% and Tools and Components operating profit rose 39% on process improvements. However, Process/Environmental Controls operating margin fell from 18.6% to 16.8%, entirely due to the Hengstler and Joslyn acquisitions, which carry lower margins than the base business. The base business in that segment showed a modest margin increase.
How much of 1995 earnings are one-time or non-recurring?
Earnings are not clearly inflated by one-offs in 1995. Discontinued operations (Fayette) contributed only $2.6 million, or $0.04 per share. The roughly $80 million gain on the Fayette sale is expected in Q1 1996, not 1995, so investors should expect a significant one-time boost to 1996 results. The 1993 results included a $36 million accounting-change charge, which is not relevant to 1995.
Can Danaher service its debt and fund growth?
Management believes so. Operations generated $174 million in 1995, versus $59 million of capex. The company has a $250 million unused revolver, and roughly $115 million of its debt is fixed at a 7.3% average rate. Most remaining borrowings are short-term and float with base rates, so rising interest rates would raise interest costs. Interest expense rose 125% in 1995 as borrowing increased to fund acquisitions.
What is the outlook for the Fayette sale and future portfolio direction?
Danaher exited the Transportation segment by agreeing in December 1995 to sell Fayette Tubular Products for $155 million, closing in January 1996. The company is focusing on its two remaining segments, Tools and Components and Process/Environmental Controls, and is growing through acquisitions in both. The filing does not provide explicit forward guidance beyond the statement that existing funding should be sufficient for the foreseeable future.

04—Continue

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