-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DlAk+Vq/c0t8wbvWEDmBHLBEfY3fk5HOUkZTWhCo5DZEv9B4L6+OLJ3u29ni0m+G 59JUodRGffUOi8Px3yGzEA== 0000313616-96-000012.txt : 19960916 0000313616-96-000012.hdr.sgml : 19960916 ACCESSION NUMBER: 0000313616-96-000012 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960913 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANAHER CORP /DE/ CENTRAL INDEX KEY: 0000313616 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 591995548 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08089 FILM NUMBER: 96629960 BUSINESS ADDRESS: STREET 1: 1250 24TH ST NW STREET 2: SUITE 800 CITY: WASHINGTON STATE: DC ZIP: 20037 BUSINESS PHONE: 2028280850 MAIL ADDRESS: STREET 1: 1250 24TH STREET NW STREET 2: SUITE 800 CITY: WASHINGTON STATE: DC ZIP: 20037 FORMER COMPANY: FORMER CONFORMED NAME: DMG INC DATE OF NAME CHANGE: 19850221 10-K/A 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULES To Danaher Corporation: We have audited in accordance with generally accepted auditing standards, the financial statements included in pages 7 to 23 of the Danaher Corporation and Subsidiaries' Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 26, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index are the responsibility of the Company's management and are presented for the purpose of complying with the Securities and Exchange Commission's rules and are not a part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the financial statements taken as a whole. ARTHUR ANDERSEN LLP Washington, D.C. January 26, 1996 DANAHER CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (000's omitted) Additions Write Balance Charged Offs, Classification at to Charged Write Balance Beginning Costs to Downs at End of & other & of Period Expenses Accounts Deductions Period Year Ended December 31, 1995 Allowances deducted from asset accounts: Allowance for 4,148 doubtful accounts $ 11,638 $ 4,847 $ 2,961 (a) $ 1,867 (b) $13,431 Year Ended December 31, 1994 Allowances deducted from asset accounts: Allowance for doubtful accounts $ 8,043 $ 6,630 $ 487 (a) $ 3,522 $ 11,638 Year Ended December 31, 1993 Allowances deducted from asset accounts: Allowance for doubtful accounts $ 6,350 $ 4,188 $ -- $ 2,495 $ 8,043 Notes: (a) - Amounts related to businesses acquired. (b) - Amounts related to businesses disposed of. 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, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As explained in Notes 1 and 7 to the financial statements, effective January 1, 1993, the Company changed its methods of accounting for income taxes and post retirement benefits other than pensions. ARTHUR ANDERSEN LLP Washington, D.C. January 26, 1996 DANAHER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands of dollars, except per share data) Year Ended December 31, 1995 1994 1993 Net revenues.. . . $1,486,769 $1,113,973 $937,633 Cost of sales.. . . 1,039,622 791,874 678,577 Selling, general and administrative expenses. 266,890 197,672 171,998 Total operating expenses 1,306,512 989,546 850,575 Operating profit. . . 180,257 124,427 87,058 Interest expense. . . . 7,198 3,201 5,361 Earnings from continuing operations before income taxes and cumulative effect of accounting change. .. . 173,059 121,226 81,697 Income taxes. .. . . . . . 67,293 48,907 33,667 Earnings from continuing operations before cumulative effect of accounting change. . . . . . . . . . . 105,766 72,319 48,030 Earnings from discontinued operations, net of income taxes of $1,630, $5,966 and $3,673 . . . . . . . . . . 2,550 9,331 5,719 Earnings before cumulative effect of accounting change . . . . . . . . . . . 108,316 81,650 53,749 Cumulative effect of accounting change, net of tax benefit of $20,000 . . - - (36,000) Net earnings. . . . . . . $108,316 $81,650 $17,749 Per share: Continuing operations. . $1.77 $1.24 $ .83 Discontinued operations . .04 .16 .10 Before accounting change 1.81 1.40 .93 Cumulative effect of accounting change. . . - - (.62) Net earnings . . . . . $1.81 $ 1.40 $ .31 Average common stock and common equivalent shares outstanding. . . 59,862,673 58,326,572 57,793,672 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, 1995 1994 ASSETS Current assets: Cash and equivalents. . . . . . . $ 7,938 $ 3,599 Trade accounts receivable, less allowance for doubtful accounts of $13,431 and $9,771 . . 224,652 168,159 Inventories. . . . . . . . . . . . 201,890 134,941 Prepaid expenses and other. . . . 31,990 50,671 Total current assets .. . . . 466,470 357,370 Property, plant and equipment, net. . 291,937 244,167 Other assets . . . . . . . . . . . . 119,444 72,609 Excess of cost over net assets of acquired companies, less amortization of $72,125 and $57,643 . 608,140 431,499 $1,485,991 $1,105,645 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of debt . . . . . . . . . . $14,970 $68,771 Trade accounts payable. . . . . . . 92,290 78,109 Accrued expenses. . . . . . . . . . 296,878 228,507 Total current liabilities. . . . . 404,138 375,387 Other liabilities. . . . . . . . . 226,925 137,643 Long-term debt .. . . . . . . . . . 268,617 116,515 Stockholders' equity: Common stock, one cent par value; 125,000,000 shares authorized; 63,406,214 and 63,198,208 issued; 58,503,008 and 58,295,002 outstanding.. . . . . . . . . . . 634 632 Additional paid-in capital. . . . . 315,205 311,648 Cumulative foreign translation adjustment. . . . . . . . . . . . 3,598 590 Retained earnings. . . . . . . . . 304,363 200,719 Treasury stock, at cost; 4,903,206 shares. . . . . . . . (37,489) (37,489) Total stockholders' equity. . . . . 586,311 476,100 $1,485,991 $1,105,645 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, 1995 1994 1993 Cash flows from operating activities: Earnings from continuing operations $105,766 $72,319 $ 48,030 Earnings from discontinued operations 2,550 9,331 5,719 Depreciation and amortization. . . . 58,527 42,554 38,397 (Increase) decrease in accounts receivable. . . . .. . . . . . . . (20,098) (15,786) 637 (Increase) decrease in inventories . . (15,589) (938) 6,946 Increase (decrease) in accounts payable. . . . . . . . . . . . . . 626 8,712 (224) Change in other assets and liabilities. . . . . . . . . . 42,374 24,162 29,187 Total operating cash flows. . . . . 174,156 140,354 128,692 Cash flows from investing activities: Payments for additions to property, plant and equipment, net (59,172) (34,811) (33,375) Cash acquired in acquisition . . . . . 22,784 - - Investments in equity securities. .. . - (22,032) - Cash paid for acquisition ... . . . . (230,725) (136,055) (53,960) Net cash used in investing activities . . . . . . . . . . . (267,113) (192,898) (87,335) Cash flows from financing activities: Proceeds from issuance of common stock. . . . . . . . . . . . 3,559 992 1,301 Dividends paid . . . . . . . . . . (4,672) (3,420) (2,559) Borrowings (repayments) of debt. . . 98,301 51,701 (65,183) Proceeds from notes payable. . . . . - - 30,000 Net cash provided by (used in) financing activities. . . . . . . 97,188 49,273 (36,441) Effect of exchange rate changes on cash. .. . . . . . . . . . . . . . 108 269 (6) Net change in cash and equivalents. 4,339 (3,002) 4,910 Beginning balance of cash and equivalents. . . . . . . . . . . 3,599 6,601 1,691 Ending balance of cash and equivalents . . . . . . . . . . . $ 7,938 $ 3,599 $ 6,601 Supplemental disclosures: Cash interest payments. . . . $ 13,699 $ 9,505 $10,677 Cash income tax payments .. . $ 69,853 $65,837 $37,331 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) Additional Common Stock Paid-In Shares Amount Capital Balance, January 1, 1993 61,700,016 $308 $278,232 Net earnings for the year. . . . . . . . . - - - Dividends declared. . . - - - Common stock issued for options exercised. . . 100,312 1 1,300 Decrease from translation of foreign financial statements. . .. . . . - - - Balance, December 31, 1993. 61,800,328 309 279,532 Net earnings for the year.. - - - Dividends declared. . . . - - - 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 - Increase from translation of foreign financial statements. . . . . . . . - - - 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 CONTINUED Cumulative Foreign Retained Treasury Translation Earnings Stock Adjustment Balance, January 1, 1993 . $108,758 $(37,489) $(1,430) Net earnings for the year. 17,749 - - Dividends declared. .. . (3,412) - - Common stock issued for options exercised. . . . - - - Decrease from translation of foreign financial statements. . . . . . . - - (351) Balance, December 31, 1993. 123,095 (37,489) (1,781) Net earnings for the year. . 81,650 - - Dividends declared. . . .. . (3,710) - - Common stock issued for options exercised. . . . . - - - Common stock issued for acquisitions . . . . . . . - - - Two-for-one common stock split. (316) Increase from translation of foreign financial statements. . . . . . . . . . - - 2,371 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 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. The equity securities of Joslyn Corporation (see Note 2) are carried at cost, which approximates market, at December 31, 1994. No gains or losses were reflected in any of the years presented. Post Retirement Benefits - As of January 1, 1993, the Company changed its method of accounting for post retirement benefits from recognizing expense as claims are paid to the accrual method specified by SFAS No. 106. The Company elected to recognize this liability immediately and its adoption is not expected to significantly impact the Company's ongoing results of operations. This change is reflected net of its tax benefit as the cumulative effect of accounting change in the accompanying Consolidated Statements of Earnings. 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. $ 14,482,000, $ 9,765,000, and $9,427,000 of amortization was charged to expense for the years ended December 31, 1995, 1994, and 1993, respectively. 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. As of January 1, 1993, the Company adopted the liability method of accounting for income taxes specified by SFAS No. 109. Its adoption had no impact on the results of operations and resulted in certain reclassifications to the Company's balance sheet. 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 December, 1995, an agreement was executed to sell the Fayette Tubular Products subsidiary 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 will be recognized in the first quarter of 1996. Net revenues for Fayette were $155 million in 1995, $175 million in 1994, and $138 million in 1993. Net assets reflected in prepaid expenses and other and in other assets were $48 million as of December 31, 1995 and 1994. (2) Acquisitions: 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 Danaher 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 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 purchase price allocations have been completed on a preliminary basis, subject to adjustment should new or additional facts about the businesses become known. The unaudited pro forma information for the periods set forth below give effect to the transaction as if it 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 acquisition been consummated as of that time. Joslyn's $35 million ($21 million after tax benefit or $.36 per share) provision for environmental remediation associated with sites previously owned by Joslyn is reflected in the 1994 amount (unaudited, 000's omitted): Year Ended December 31, December 31, 1995 1994 Net Sales $1,640,554 $1,330,150 Net Earnings 109,919 59,696 Earnings per share $ 1.84 $ 1.02 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. In 1993, the Company acquired certain businesses for its process/environmental controls segment. Annual sales levels of the acquired businesses are approximately $65 million. The transactions have been accounted for as purchases. (3) Inventory: The major classes of inventory are summarized as follows (000's omitted): December 31, 1995 December 31, 1994 Finished goods. . . $ 89,932 $ 69,232 Work in process. . . 51,904 31,799 Raw material .. . 60,054 33,910 $ 201,890 $ 134,941 If the first-in, first-out (FIFO) method had been used for inventories valued at LIFO cost, such inventories would have been $12,167,000 and $12,096,000 higher at December 31, 1995 and 1994, respectively. (4) Property, Plant and Equipment: The major classes of property, plant and equipment are summarized as follows (000's omitted): December 31, 1995 December 31, 1994 Land and improvements . . $ 15,015 $ 9,309 Buildings . . . . . . . . 93,312 76,920 Machinery and equipment.. 352,176 291,675 460,503 377,904 Less accumulated depreciation... . . . . (168,566) (133,737) Property, plant and equipment. . . . . . .. $291,937 $244,167 (5) Financing: Financing consists of the following (000's omitted): December 31, 1995 December 31, 1994 Notes payable . . . . . . $115,300 $ 130,000 Bank credit facility. . . - - Other . . . . . . . . . . 168,287 55,286 283,587 185,286 Less-currently payable. . 14,970 68,771 $ 268,617 $ 116,515 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 is $120 million and $123 million as of December 31, 1995 and 1994. Other includes principally short-term borrowings under uncommitted lines of credit which are payable upon demand. The carrying amount approximates fair value. Substantially all other debt was repaid subsequent to year-end with the $155 million proceeds from the sale of Fayette Tubular Products. The Company's bank credit facility provides for revolving credit through November 1, 2000, 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 .1875%. The weighted average interest rate for variable rate debt was 6.0%, 5.1%, and 3.8% for each of the three years ended December 31, 1995. Weighted average borrowings under the bank facility were $5,000,000, $2,986,000, and $48,886,000 for the years ended December 31, 1995, 1994 and 1993. Maximum amounts outstanding for these years were $60,000,000, $33,525,000, and $79,000,000 respectively. The Company is charged a fee of .1% per annum for the facility. Commitment and facility fees of $216,000, $258,000, and $521,000 were incurred in 1995, 1994 and 1993. Interest expense of $7,150,000, $6,112,000 and $4,984,000 is included in discontinued operations for the years ended December 31, 1995, 1994 and 1993. The minimum principal payments during the next five years are as follows: 1996 - $14,970,000; 1997 - $14,847,000; 1998 - $14,835,000; 1999 - $41,335,000; 2000 - $167,060,000 and $30,540,000 thereafter. (6) Accrued Expenses and Other Liabilities: Selected accrued expenses and other liabilities include the following (000's omitted): December 31, 1995 December 31, 1994 Employee compensation .. $60,655 $39,831 Insurance including self insurance . .. . 49,961 40,797 Post retirement benefits.. 76,844 60,897 Environmental compliance.. 88,212 11,570 Approximately $23 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 as of December 31, 1995. It is the Company's policy to fund, at a minimum, amounts required by the Internal Revenue Service. Net periodic pension cost included the following components: PENSION EXPENSE(000's omitted) 1995 1994 1993 Service cost-benefits earned during the period. . . . $ 181 $1,209 $1,079 Interest cost on projected benefit obligation. . . . 7,330 5,633 5,947 Actual (return) loss on plan assets . .. . . . . . . . (20,175) 690 (9,079) Net amortization and deferrals. . . . . . . . 12,866 (7,119) 2,901 Net periodic pension cost. $ 202 $ 413 $ 848 The following sets forth the funded status of the plans as of the most recent actuarial valuations (000's omitted): 1995 Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Asets Actuarial present value of benefit obligations: Vested benefit obligation. $(58,595) (57,042) Accumulated benefit obligation. . . . . . . (59,516) (59,649) Projected benefit obligation. . . . . . . (59,516) (59,649) Fair value of plan assets (consisting of stocks, bonds and temporary cash investments). .. . . . 72,969 56,240 Projected benefit obligation (in excess of) or less than plan assets. . . . 13,453 (3,409) Unrecognized net (gain) loss. (4,120) 2,919 Unrecognized prior service cost. . . . . . . . . . - - Unrecognized net asset . . . (605) (1,269) Pension (liability) prepaid recognized in the balance sheet. . . . . . . . . $ 8,728 $(1,759) 1994 Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets Actuarial present value of benefit obligations: Vested benefit obligation. $(15,459) $(56,480) Accumulated benefit obligation. . . . . . . (15,696) (56,966) Projected benefit obligation. . . . . . . (15,696) (56,966) Fair value of plan assets (consisting of stocks, bonds and temporary cash investments). .. . . . . 16,781 53,776 Projected benefit obligation (in excess of) or less than plan assets. . . . . . 1,085 (3,190) Unrecognized net (gain) loss. 800 1,243 Unrecognized prior service cost. . . . . . . . . 640 1,019 Unrecognized net asset . . . . (975) (1,218) Pension (liability) prepaid recognized in the balance sheet. . . . . . . . . . . $1,550 $(2,146) The expected long-term rate of return on plan assets was 10%. The discount rates used in determining pension cost and benefit obligations was 8.5% at January 1, 1995 and 7.5% at December 31, 1995. 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 $11,870,000, $8,677,000, and $8,023,000 for the years ended December 31, 1995, 1994 and 1993, 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): 1995 1994 1993 Service cost . . .. $ 298 $ 256 $ 222 Interest cost . .. . . 4,734 3,995 4,566 $5,032 $ 4,251 $ 4,788 The following sets forth the program's funded status (000's omitted): December 31, 1995 December 31, 1994 Accumulated Post Retirement Benefit Obligation (APBO): Retirees. . . . . . . $52,788 $40,419 Fully eligible active participants. . . . . 10,840 6,733 Other active participants. . . . . 11,265 4,205 Total APBO 74,893 51,357 Net Gains 1,951 9,540 Plan assets - - Accrued Liability $76,844 $60,897 A 10% annual rate of increase in per capita costs of covered healthcare benefits was assumed for 1996, decreasing to 6% by 2002. A 1% increase in the assumed cost trend assumption would increase the APBO by $8 million and would have increased 1995 costs by approximately $500,000. A discount rate of 8.5% was used as of January 1, 1995. A discount rate of 7.5% was used to determine the APBO as of December 31, 1995. (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 3,600,000 shares. Under the plan, options are granted at not less than 85% of existing market prices and expire ten years from the date of grant. 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 1,1993 2,165,176 Granted (average $16.40 per share) 1,072,200 Exercised (average $7.23 per share) (100,312) Cancelled (91,688) Outstanding at December 31, 1993 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 3,439,876 As of December 31, 1995, options covering 2,075,576 shares are exercisable at $5.94 to $31.00 per share. (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 $12,037,000 in 1996, $7,709,000 in 1997, $5,587,000 in 1998, $3,569,000 in 1999, and $1,978,000 in 2000. Total rent expense charged to income for all operating leases was $16,067,000, $8,947,000, and $10,047,000 for the years ended December 31, 1995, 1994, and 1993, 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 all appropriate procedures called for at the time, subsequent changes in environmental laws may require the generators of these spent preservatives to be responsible for the cost of remedial actions at the sites where spent preservatives have been deposited. The Company is continuing its investigation of these sites and remediation technologies. The Company has made a provision for environmental compliance; 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 and property devaluation resulting from wood treating operations previously conducted at a Louisiana site. Both the size of the class and the damages are 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 financial condition. 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): 1995 1994 1993 Federal. . . . . . . $56,308 $40,297 $28,367 State and local. . . 6,815 5,400 3,800 Foreign. . . . . . . 4,170 3,210 1,500 $ 67,293 $48,907 $33,667 Income tax expense currently payable was $73,225,000, $70,865,000, and $46,140,000 for the years ended December 31, 1995, 1994 and 1993, 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 and for capital loss carryforwards) consist of the following (000's omitted): December 31, 1995 1994 Bad debt allowance . . . . . $ 4,681 $ 4,100 Inventories . . . . . . . . . (926) 1,700 Property, plant and equipment .. . (25,395) (20,900) Post retirement benefits. . . . . 28,405 21,300 Other accruals . . . . . . . . . . 86,727 46,700 All other accounts . . . . . . . (3,840) 1,500 Operating loss carryforwards . . . . 7,000 800 Capital loss carryforwards. . . . . . 0 1,300 Gross deferred tax asset. . . . . . . 96,652 56,500 Valuation allowances. .. . . . . . . (7,000) (2,100) Net deferred tax asset . . . . . .$ 89,652 $ 54,400 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 1995 1994 1993 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. .. . . . 2.9 2.8 3.7 State income taxes (net of Federal income tax benefit). 2.6 2.9 3.0 Taxes on foreign earnings. . (1.6) (0.4) (0.5) Effective income tax rate.. . . . 38.9% 40.3% 41.2% (12) Segment Data: As of December 31, 1995 the Company operated within two major business segments: Tools and Components, and Process/Environmental Controls. The Tools and Components segment has a customer which accounted for approximately 16%, 21% and 21% of total sales in 1995, 1994 and 1993, 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 receivables 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, 1995 1994 1993 Total Revenues: Tools and Components $1,005,005 $ 809,989 $691,344 Process/Environmental Controls 481,764 303,984 244,400 Other - - 1,889 $1,486,769 $1,113,973 $937,633 Operating Profit: Tools and Components $ 112,981 $ 81,463 $ 56,443 Process/Environmental Controls 80,804 56,632 42,781 Other (13,528) (13,668) (12,166) $ 180,257 $ 124,427 $ 87,058 Identifiable Assets: Tools and Components $ 821,604 $ 687,908 $ 550,169 Process/Environmental Controls 599,466 340,952 240,712 Other 64,921 76,785 51,413 $1,485,991 $1,105,645 $ 842,294 Depreciation and Amortization: Tools and Components $ 35,211 $ 32,220 $ 29,562 Process/Environmental Controls 23,316 10,334 8,835 $ 58,527 $ 42,554 $ 38,397 Capital Expenditures: Tools and Components $ 48,500 $ 40,392 $ 28,133 Process/Environmental Controls 10,672 8,348 5,242 Sales of Fixed Assets - (13,929) - $ 59,172 $ 34,811 $ 33,375 Operations in Geographical Areas - Year Ended December 31, 1995 1994 1993 Total Revenues: United States. . . . . . $1,235,933 $1,004,697 $ 854,267 Europe . . . . . . . . . 205,228 77,126 52,195 Other. . . . . . . . . . 45,608 32,150 31,171 $1,486,769 $1,113,973 $ 937,633 Operating Profit: United States. . . . . . $ 156,170 $ 115,589 $ 81,207 Europe . . . . . . . . . 20,348 7,179 3,568 Other. . . . . . . . . 3,739 1,659 2,283 $ 180,257 $ 124,427 $ 87,058 Identifiable Assets: United States. .. . . . . $1,292,166 $1,029,825 $ 776,421 Europe . . . . . . . . . 173,949 62,833 51,246 Other. . . . . . . . . . 19,876 12,987 14,627 $1,485,991 $1,105,645 $842,294 Export sales were approximately $107 million, $91 million and $75 million for the years ended December 31, 1995, 1994 and 1993. (13) Quarterly Data-Unaudited (000's omitted except per share data) 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 1994 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net revenues. . $246,224 $270,418 $284,806 $312,525 Gross profit. .. 67,792 77,892 87,265 89,150 Operating profit. 21,712 27,920 36,720 38,075 Earnings from continuing operations . . . 12,200 15,859 21,555 22,705 Earnings from discontinued operations . . . 2,328 3,407 1,543 2,053 Net earnings. . . 14,528 19,266 23,098 24,758 Earnings per share: Continuing operations . . . $ .21 $ .27 $ .37 $ .39 Discontinued operations . . . .04 .06 .03 .04 Net earnings . . . $ .25 $ .33 $.40 $ .42 -----END PRIVACY-ENHANCED MESSAGE-----