-----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, BQTTw7x8Ha3HimASDiQUi9rzNCJzDlPLb10J4vnd83FmhckLU9aJ8m0d6FkxCXPS iRrYxq5JwGvYsQB8jpZXNg== 0000313616-99-000002.txt : 19990322 0000313616-99-000002.hdr.sgml : 19990322 ACCESSION NUMBER: 0000313616-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990319 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 SEC ACT: SEC FILE NUMBER: 001-08089 FILM NUMBER: 99568337 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 1 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____to___Commission File Number:1-8089 DANAHER CORPORATION (Exact name of registrant as specified in its charter) Delaware 59-1995548 (State of incorporation) (I.R.S.Employer Identification number) 1250 24th Street, N.W., Suite 800 Washington, D.C. 20037 (Address of Principal (Zip Code) Executive Offices) Registrant's telephone number, including area code: 202-828-0850 Securities Registered Pursuant to Section 12(b) of the Act: Name of Exchanges Title of each class on which registered Common Stock $.01 par Value New York Stock Exchange, Inc. Pacific Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: NONE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 19, 1999, the number of shares of common stock outstanding was 135.3 million and were held by approximately 3,000 holders. The aggregate market value of common shares held by non-affiliates of the Registrant on such date was approximately $4.3 billion, based upon the closing price of the Company's common shares as quoted on the New York Stock Exchange composite tape on such date. EXHIBIT INDEX APPEARS ON PAGE 13 DOCUMENTS INCORPORATED BY REFERENCE Part II and Part IV incorporate certain information by reference from the registrant's Annual Report to Shareholders for the year ended December 31, 1998. With the exception of the pages of the Annual Report to Shareholders specifically incorporated herein by reference, the Annual Report to Shareholders is not deemed to be filed as part of this Form 10-K. Part III incorporates certain information by reference from the registrant's proxy statement for its 1999 annual meeting of stockholders. With the exception of the pages of the 1999 Proxy Statement specifically incorporated herein by reference, the 1998 Proxy Statement is not deemed to be filed as part of this Form 10-K. Certain information included or incorporated by reference in this document may be deemed to be "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future are forward looking statements. Such statements are characterized by terminology such as "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions. These statements are based on assumptions and assessments made by the Company management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. These forward looking statements are subject to a number of risks and uncertainties, including but not limited to continuation of the Company's longstanding relationship with major customers, the Company's ability to integrate acquired businesses into its operations and realize planned synergies, the extent to which acquired businesses are able to meet the Company's expectations and operate profitably, changes in regulations (particularly environmental regulations) which could affect demand for products in the Process/Environmental Controls segment and unanticipated developments that could occur with respect to contingencies such as environmental matters and litigation. In addition, the Company is subject to risks and uncertainties that affect the manufacturing sector generally including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. Any such forward looking statements are not guarantees of future performances and actual results, developments and business decisions may differ from those envisaged by such forward looking statements. The Company disclaims any duty to update any forward looking statements, all of which are expressly qualified by the foregoing. ITEM 1. BUSINESS The Company conducts its operations through two business segments: Process/Environmental Controls and Tools and Components. Process/Environmental Controls The Process/Environmental Controls segment is comprised of the Fluke Corporation ("Fluke"), Veeder-Root Company ("Veeder-Root"), Danaher Controls, Partlow/West, Anderson Instruments, West Instruments, QualiTROL Corporation, A.L. Hyde Company, Hengstler, McCrometer, the controls product line business units of Joslyn Corporation and Pacific Scientific Company, Namco Controls, Dolan-Jenner, M&M Precision Systems, Communications Technology Corporation, Gems Sensors and Dr. Bruno Lange GmbH. These companies produce and sell compact, professional electronic test tools, underground storage tank leak detection systems and motion, position, speed, temperature, level and position instruments and sensing devices, power switches and controls, communication line products, power protection products, liquid flow and quality measuring devices, quality assurance products and systems, safety devices 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. The Company's strategy in the Process/Environmental Controls segment is to concentrate on the rapid expansion of its environmental controls product line, including the Veeder-Root storage tank leak detection systems business. The Company believes that Veeder-Root is the premier manufacturer of state-of-the-art tank measuring and leak detection systems for underground fuel storage tanks and, accordingly, is uniquely positioned to respond to the increased demand for these products. The Company is also expanding its other offerings in the environmental controls product line to encompass applications related to markets other than petroleum storage and to address nonregulatory business requirements. Offerings include analytical instruments for air and water quality monitoring. This expansion program includes both internally developed new product offerings as well as selective product line acquisitions. Fluke is engaged in the design, manufacture and marketing of compact, professional electronic test tools. Fluke's principal products are portable instruments that measure voltage, current, power quality, frequency, temperature, pressure and other key functional parameters of electronic equipment. Fluke distributes its products in over 100 countries, serving two major markets: industrial tools and networks. In its instruments product line, the Company's strategy is to continue enhancing its global controls and instrument position by both new product development and complementary acquisitions. Danaher's instrument companies have significant synergies in both product offerings and channels of distribution. The Company's plan is to leverage these synergies in product design, engineering and manufacturing, and product marketing. M&M Precision Systems provides both quality assurance products and systems which enhance both quality and manufacturing effectiveness as well as motion products which are generally components of other devices. Other business lines within this segment include extruded thermoplastic mill shapes and custom molded plastic products. In March, 1998, the Company acquired Pacific Scientific Company. Pacific Scientific has two major business segments: (i) Electrical Equipment and (ii) Safety Equipment. Nearly half of the company's sales consists of electric motors, drives and controls. These electric motors and controls are sold primarily to original equipment manufacturers who incorporate them into a wide variety of products. Pacific Scientific motors are used in factory automation, medical, printing, plastic extrusion and molding, paper converting, vending, textile, aerospace, fitness and many other types of equipment. Safety equipment includes mainly fire detection and suppression equipment, crew restraints, flight control and pyrotechnic devices. Safety equipment is sold mainly in the aviation and aerospace industry. The company also provides worldwide sales, service and repair of its products for airlines and other users of safety equipment. Operating results from Pacific Scientific have been included with the Company's results, beginning with the first quarter of 1998. The raw materials utilized by companies in this segment are stock items, principally metals and plastic, electrical and electronic components. These materials are readily available from a number of sources in sufficient quantities. Tools and Components The Tools and Components segment is comprised of the Danaher Hand Tool Group (including Special Markets, Professional Tool Division and Asian Tool Division), Matco Tools ("Matco"), Jacobs Chuck Manufacturing Company ("Jacobs"), Delta Consolidated Industries, Jacobs Vehicle Systems Company, 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 mechanics' hand tools and automotive specialty 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. The Company's business strategy in this segment is focused on increasing sales to existing customers, broadening channels of distribution, developing new products, geographic expansion and achieving production efficiencies and enhanced quality and customer service through "Just-In-Time" and related manufacturing techniques. Danaher Tool Group (DTG) is one of the largest domestic producers of general purpose mechanics' hand tools (primarily ratchets, sockets and wrenches) and specialized automotive service tools for the professional and "do-it-yourself" markets. DTG has been the principal manufacturer of Sears, Roebuck and Co.'s Craftsman line of mechanics' hand tools for over 50 years. Approximately 80% of the over 100 million pieces sold to Sears annually are sold in tool sets that include from three to 900 pieces. Net sales to Sears were approximately 10% of total Company sales in 1998. DTG's Special Markets Group sells to Sears under a five year evergreen agreement, that requires Sears to purchase a significant portion of its annual requirements for its private-label Craftsman mechanics' hand tool line from DTG, subject to certain conditions. For over 30 years, DTG has also been a primary supplier of specialized automotive service tools to NAPA, which has approximately 6,500 outlets at present. In addition, DTG has been the designated supplier of general purpose mechanics' hand tools to NAPA since 1983. DTG specialized automotive service tools are also sold under the K-D Tools brand, its industrial tools and products are also sold under the Armstrong and Allen brand names, and fastener products under the Holo-Krome name are sold to independent distributors and other customers in the "do-it-yourself," professional automotive, commercial and industrial markets. Professional mechanics' tools are distributed by Matco which has approximately 1,300 independent mobile distributors who sell primarily to individual professional mechanics. Matco is one of the leading suppliers in this market. The Company believes Jacobs is the market leader in the drill chuck business with its highly respected and well recognized brand name. The Company believes Delta is the market leader in boxes and other storage containers serving the vehicle aftermarket and manufactures and markets containers serving numerous specialty areas. Wheel service equipment is manufactured under the Coats , Bada and Ammco brand names. Products include tire changers, wheel balancers, wheel weights and brake service equipment. Wheel service equipment is sold primarily to wholesale distributors and national accounts. These markets are served by the Company's sales personnel. Diesel engine retarders are manufactured at Jacobs Vehicle Systems Company. The "Jake Brake " technology was developed by Jacobs Vehicle and represents the leading brand of engine retarders. The product is sold by Jacobs' sales personnel to original equipment manufacturers and aftermarket distributors. JMC manufactures a wide variety of products used in the construction and maintenance of electric power, telephone and cable television systems. Its products range from specialized fasteners to sophisticated castings and forgings. JMC also manufactures surge protection devices for the electric power utility industry. The major raw materials used by this segment, including high quality steel, are available from a variety of sources in sufficient quantities. Patents, Licenses, etc. The Company has patents of its own and has acquired licenses under patents of others. The Company does not consider that its business, as a whole, is dependent on any single patent, group of patents, trademark or franchise. The Company does, however, offer many patented products and is periodically engaged in litigation concerning patents and licenses. Seasonal Nature of Business As a whole, the Company's businesses are not subject to material seasonal fluctuations. Backlog The Company's products are manufactured primarily in advance of order and either shipped or assembled from stock. Backlogs are not significant as sales are often dependent on orders requiring immediate shipment from inventory. Employee Relations At December 31, 1998, the Company employed approximately 18,000 persons. Of these, approximately 2,300 were hourly-rated unionized employees. The Company considers its labor relations to be good. Research and Development The Company's research and development expenditures were $111 million for 1998, $88 million for 1997 and $77 million for 1996. Environmental and Safety Regulations Certain of the Company's operations are subject to federal, state and local environmental laws and regulations which impose limitations on the discharge of pollutants into the air and water and establish standards for treatment, storage and disposal of solid and hazardous wastes. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. 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. In addition to environmental compliance costs, the Company may incur costs related to alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices. For example, generators of hazardous substances found in disposal sites at which environmental problems are alleged to exist, as well as the owners of those sites and certain other classes of persons, are subject to claims brought by state and federal regulatory agencies pursuant to statutory authority. The Company believes that its liability, if any, for past or current waste handling practices will not have a material adverse effect on its results of operation, financial condition and cash flow. The Company must also comply with various federal, state and local safety regulations in connection with its operations. The Company's compliance with these regulations has had no material adverse effect on its financial condition. Major Customers The Company has a customer in the tools segment, Sears, Roebuck and Co. ("Sears"), which accounted for 10% of consolidated sales in 1998. Although the relationship with Sears is long-standing, the Company believes the loss or material reduction of this business could have a material adverse effect on its operations. ITEM 2. PROPERTIES The Company occupies over 5 million square feet of manufacturing, distribution, service and office space at various domestic and foreign locations. The principal properties are listed below and are constructed of concrete, brick, cement, cinderblock or some combination of these materials. The Company believes that its plants have adequate productive capacity and are suitably used for the manufacture of its products and that its warehouses, distribution centers and sales offices are suitably located and utilized for the marketing of its products and services. Location Principal Use Owned/Leased ............................................................. .... Process/Environmental Controls Altoona, PA Manufacturing Owned Elizabethtown, NC Manufacturing Owned Market Harborough, England Manufacturing Leased Sao Paulo, Brazil Manufacturing Owned New Hartford & Fairport, NY Manufacturing Owned Gurnee, IL Manufacturing Leased Grenloch, NJ Manufacturing Owned Brighton, England Manufacturing Leased Aldingen, Germany Manufacturing Owned Aldingen, Germany (2) Manufacturing Leased Wehingen, Germany (2) Manufacturing Leased Eatontown, NJ Distribution Leased Broxbourne, England Distribution Leased Cleveland, OH (3) Manufacturing Owned Goleta, CA Manufacturing Owned Lachine, Quebec Manufacturing Leased Lancaster, SC Manufacturing Owned Paso Robles, CA Manufacturing Leased San Jose, CA Manufacturing Owned Hemet, CA Manufacturing Owned Madison, AL Manufacturing Leased Etobicoke, Canada Manufacturing Leased Highland Heights, OH Manufacturing Owned Herzhorn, Germany Manufacturing Owned West Carollton, OH Manufacturing Owned Loffingen, Germany Manufacturing Owned Tamworth, England Manufacturing Leased Basingstoke, England Manufacturing Owned Baretswil, Switzerland Manufacturing Owned Plainville, CT Manufacturing Owned Everett, WA Manufacturing Owned Einhoven, Netherlands Manufacturing Leased Chandler, AZ Manufacturing Leased Duarte, CA Manufacturing Leased Yorba Linda, CA Manufacturing Leased Rockford, IL Manufacturing Leased Grants Pass, OR Manufacturing Owned Wilmington, MA Manufacturing Leased Kazmarek, Slovakia Manufacturing Leased Weymouth, MA Manufacturing Owned Tools and Components Springdale, AK Manufacturing Owned Springfield, MA Manufacturing Owned Gastonia, NC Manufacturing Leased Fayetteville, AK (2) Manufacturing Owned Baltimore, MD Distribution Leased Brampton, Ontario Distribution Leased Lakewood, NY Manufacturing Owned Nashville, TN Distribution Owned Stow, OH Distribution Owned West Hartford, CT Manufacturing Owned Terryville, CT Manufacturing Owned Walworth, WI Manufacturing Owned Dundee, Scotland Manufacturing Owned Sheffield, England Manufacturing Owned Clemson, SC Manufacturing Owned Jonesboro, AK Manufacturing Owned Raleigh, NC Manufacturing Leased Chicago, IL (3) Manufacturing Owned Bloomfield, CT Manufacturing Owned LaVergne, TN Manufacturing Owned Bowling Green, KY Manufacturing Owned Suzhou, China Manufacturing Owned Shanghai, China (3) Manufacturing Owned Taichung, Taiwan Manufacturing Leased Dallas, TX Manufacturing Leased Atlanta, GA Manufacturing Owned In addition to the facilities listed, the Company owns or leases various facilities including offices or properties in Washington, District of Columbia; Simsbury, Connecticut; as well as facilities in Uppermill, Livingston, Gloucester and Richmond, Great Britain; Melbourne and Sydney, Australia; Nagoya, Osaka and Tokyo, Japan; Toronto, Canada; Paris, Bron, Toulouse, Bordeaux, Tours and Selestat, France; and Stuttgart, Germany. ITEM 3. LEGAL PROCEEDINGS A former subsidiary of the Company is engaged in litigation in several states with respect to product liability. The principal case, Patton, et al v. Chicago Pneumatic Tool Company, was filed in United States District Court in Jackson Co., MS in 1989. There are other related cases. 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. 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 Company's maximum indemnification obligation under the contract is approximately $85,000,000. The Company has accepted an agreement in principle to settle all claims. Completion of this settlement agreement will not result in a material adverse effect on the Company's results of operations or financial condition. JMC is a defendant in a class action tort suit, Henry L. Johnson, et. al. v. Lincoln Creosote Company, Inc., et. al., filed in the 26th Judicial District Court of the State of Louisiana, in Bossier Parish, Louisiana. 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. JMC has reached agreement with its insurance carrier which fixes its liability for this matter to a stated amount which will not have a material adverse effect on the Company's results of operations or financial condition. In addition to the litigation noted above, the Company and its subsidiaries are from time to time subject to ordinary routine litigation incidental to their business. The Company believes that the results of the above noted litigation and other pending legal proceedings would not have a materially adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER No matters were submitted to a vote of security holders during the fourth quarter of 1998. PART II ITEMS 5 THROUGH 8. The information required under Items 5 through 8 is included in the Registrant's Annual Report to its Shareholders for the year ended December 31, 1998, and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE PART III ITEMS 10 THROUGH 13. The information required under Items 10 through 13 is included in the Registrant's Proxy Statement for its 1999 annual meeting, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) Document List 1. Financial Statements Response to this portion of Item 14 is submitted per the Index to Financial Statement Schedules on page 12 of this report. 2. Supplementary Data and Financial Statement Schedules Response to this portion of Item 14 is submitted per the Index to Financial Statement Schedules on page 12 of this report. b) Reports on Form 8-K filed in the fourth quarter of 1998. NONE c) An Index of Exhibits is on page 13 of this report. DANAHER CORPORATION INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULES Page Number in: Annual Report Form 10K To Shareholders Annual Report: Report of Independent Public Accountants on Schedule 15 Financial Statements: Consolidated Statements of Earnings, year ended December 31, 1998, 1997, and 1996 18 Consolidated Balance Sheets, December 31, 1998 and 1997 19 Consolidated Statements of Cash Flows, years ended December 31, 1998, 1997, and 1996 20 Consolidated Statements of Stockholders' Equity, years ended December 31, 1998, 1997, and 1996 21 Notes to Consolidated Financial Statements 22 Supplemental Data: Selected Financial Data 12 Market Prices of Common Stock 31 Schedules: II - Valuation and Qualifying Accounts 16 Schedules other than those listed above have been omitted from this Annual Report because they are not required, are not applicable or the required information is included in the financial statements or the notes thereto. Exhibits: (3) Articles of Incorporation and By-Laws. (a) The Articles of In corporation of Incorporated by Danaher Reference to Exh 3 of 6/26/98 Form 10-Q (b) The By-Laws of Danaher. Incorporated by Reference to Exh 3 of 6/26/98 Form 10-Q (10) Material Contracts: (a) Employment Agreement between Danaher Incorporated by Corporation and George M. Sherman dated Reference to as of January 2, 1990 Exh 10(a) of 6/26/98 Form 10-Q (b) Credit Agreement Dated As of Incorporated by September 7, 1990. Among Danaher Corporation, Reference to the Financial Institutions Listed Therein, Exh 10(b) of and Bankers Trust Company as Agent. 6/26/98 Form 10-Q (c) Agreement as of November 1, 1990 Incorporated by betweenDanaher Corporation, Reference to Easco Hand Tools, Inc. Exh 10(c)of and Sears, Roebuck and Co. 6/26/98 Form 10-Q (d) Note Agreement as of November 1, 1992 Incorporated by Between Danaher Corporation and Lenders Reference to Referenced Therein. Exh 10(d) of 6/26/98 Form 10-Q (e) Note Agreement as of April 1, 1993 Incorporated by Between Danaher Corporation and Lenders Reference to Referenced Therein Exh 10(d) of . 6/26/9 8 Form 10-Q (f) Danaher Corporation 1997 Stock Option Incorporated by Plan Reference to Exh A of Proxy statement dated March 30, 1998 (g) Employment Agreement between Danaher Incorporated by Corporation and John P. Watson, dated Reference to January 17, 1991 Form 8-K dated July 9, 1998 (h) Indenture Agreement as of October 28, Incorporated by 1998 Between Danaher Corporation and The First Reference to National Bank of Chicago, as Trustee Form S-3 (File 333-63591) (13) Annual Report to Securityholders (21) Subsidiaries of Registrant. (23) Consent of Independent Public Accountants. (27) Financial Data Schedules SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DANAHER CORPORATION By: /s/ GEORGE M. SHERMAN George M. Sherman President and Chief Executive Officer Date: March 19, 1999 /s/ GEORGE M. SHERMAN President and Chief Executive George M. Sherman Officer /s/ STEVEN M. RALES Chairman of the Board Steven M. Rales /s/ MITCHELL P. RALES Chairman of the Executive Mitchell P. Rales Committee /s/ WALTER G. LOHR, JR. Director Walter G. Lohr, Jr. /s/ DONALD J. EHRLICH Director Donald J. Ehrlich /s/ MORTIMER M. CAPLIN Director Mortimer M. Caplin /s/ A. EMMET STEPHENSON, JR. Director A. Emmet Stephenson, Jr. /s/ PATRICK W. ALLENDER Senior Vice President-Chief Patrick W. Allender Financial Officer and Secretary /s/ C. SCOTT BRANNAN Vice President and Controller C. Scott Brannan REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULES To Danaher Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in 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 27, 1999. 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 27, 1999 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 Down at End of & other & of Period Expenses Accounts Deductions Period Year Ended December 31, 1998 Allowances deducted from asset accounts: Allowance for doubtful accounts $19,000 $ 9,442 $ 2,698(a) $ 7,140 $24,000 Year Ended December 31, 1997 Allowances deducted from asset accounts: Allowance for doubtful accounts:$16,000 $ 6,986 $ 510(a) $ 4,496 $19,000 Year Ended December 31, 1996 Allowances deducted from asset accounts: Allowance for doubtful accounts:$14,000 $ 6,161 $ 507(a) $ 4,668 $16,000 Notes:(a) - Amounts related to businesses acquired, net of amounts related to businesses disposed. EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statement File No. 33-32402. ARTHUR ANDERSEN LLP Washington, D.C. March 22, 1999 EX-27 2 FDS
5 1000 YEAR DEC-31-1998 DEC-31-1998 41923 0 491108 24000 323486 886904 912618 441593 2738715 688705 0 0 0 1467 1350364 2738715 2910038 2910038 1821084 2543200 40796 0 24931 301111 118165 182946 0 0 0 182946 1.32 1.32
EX-21 3 Danaher Corporation and Subsidiaries Exhibit to 1996 Annual Report on Form 10K (21) Subsidiaries of Registrant STATE OR JURIS- DOING DICTION OF BUSINESS NO. CORPORATION INCORPORATION AS(DBA) 1 Danaher Corporation Delaware - 2 DHR Services Delaware - 3 DMG Plastics, Inc. Delaware - 4 FJ900 Inc. Delaware - 5 Armstrong Tools, Inc. Delaware - 6 Diversified Mortgage Investors, Inc. Florida - 7 Utica Holding Company Delaware - 8 DH Holdings Corp. Delaware - 9 Easco Hand Tools Inc. Delaware Danaher Tool Group 10 Hand Tool Design Corporation Delaware - 11 KD Tools of Puerto Rico, Inc. Delaware - 12 Beamco, Inc. Wisconsin - 13 Old Tide Corp. Califonia - 14 Dynapar Corporation Illinois Danaher Controls 15 Encoders Incorporated Delaware - 16 KACO Gmbh Germany - 17 Namco Controls Gmbh Germany - 18 Piccadilly Precision Engineering Ltd. Ohio - 19 Spline Gauges Ltd. Delaware - 20 Hennessy Industries Inc. Delaware Hennessy/Ammco 21 Service Station Products Company Delaware - 22 Hennessy Industries Canada Inc. Canada - 23 KD Tools of Canada Canada - 24 Ammco Tools Inc. Illinois Hennessy/Ammco 25 Wheel Service Equipment Corporation Delaware 26 Jacobs Vehicle Systems, Inc. Delaware - 27 Diesal Engine Retarders, Inc. Delaware - 28 Jacobs Chuck Manufacturing Company Delaware - 29 Jacobs Japan Inc. Delaware - 30 Power Tool Holders Incorporated Delaware - 31 Matco Tools Corporation New Jersey - 32 Chicago Pneumatic Tool Company West Germany Delaware - 33 Chicago Pneumatic World Trade Corp. Delaware - 34 Mechanics Custom Tools Corporation Delaware - 35 NMTC, Inc. Delaware Matco Tools Corporation 36 Qualitrol Corporation New York - 37 Power Transformer Controls Company Delaware - 38 Qualitrol Canada Canada - 39 Qualitrol GmbH Germany - 40 Hengstler GmbH i.G. Germany - 41 Hengstler Feinwerktechnik GmbH Germany - 42 Hengstler Japan Corp. Japan - 43 Hengstler Controle Numerique SARL France - 44 SCI Hengstler France - 45 Hengstler Italia SRL Italy - 46 Hengstler Espana SA Spain - 47 Hengstler Canada Inc. Canada - 48 Hengstler Belgium SPRL Belgium - 49 Hengstler Nederland BV Netherlands - 50 Hengstler Tid och Passage AB Sweden - 51 Veeder-Root GmbH Germany - 52 The Partlow Corporation New York Partlow/ Anderson 53 Time & Temperature Controls Corp. Delaware - 54 Anderson Instrument Company New York Partlow/ Anderson 55 Flow Measurement Corporation Delaware - 56 Western Pacific Industries Delaware Iseli Company 57 Swiss Precision Parts Corp. Delaware - 58 A.L. Hyde Company Delaware - 59 Extrusions Plastics, Inc. Delaware - 60 World Plastic Extruders, Inc. New York - 61 Holo-Krome Company Delaware Danaher Tool Group 62 The Allen Manufacturing Company Delaware Danaher Tool Group 63 Industrial Fasteners Inc. Delaware - 64 Holo-Krome Uniform Fasteners Inc. California - 65 Holo-Krome Australia Australia - 66 Quality Wire Inc. Delaware Danaher Tool Group 67 Veeder-Root Company Delaware - 68 Petroleum Industry Controls, Inc. Delaware - 69 Veeder-Root of N.C. Inc. Delaware Danaher Controls 70 Veeder-Root do Brazil Brazil - 71 Veeder-Root SARL France - 72 Launchchange Limited U.K. - 73 West Instruments Ltd. U.K. - 74 Veeder-Root Ltd. U.K. - 75 Veeder-Root Environmental Systems Ltd. U.K. - 76 Danaher Canada Canada - 77 Gwendolene Holdings Ltd. U.K. - 78 Qualitrol Instruments Ltd. U.K. - 79 CGF Automation Ltd. U.K. - 80 Contents Measuring Systems Limited U.K. - 81 Hengstler Industries Ltd. U.K. - 82 Hengstler Great Britain Ltd. U.K. - 83 Hengstler Flexitime Ltd. U.K. - 84 Hengstler Leasing Ltd. U.K. - 85 Jacobs Manufacturing Co. Ltd. U.K. - 86 Holo-Krome Ltd. U.K. - 87 Exidyne Instruments Technologies, Inc. Pennsylvania - 88 GID Acquisition Companu Delaware GID Instruments 89 Data Recorders Incorporated Delaware - 90 Middle Road Company Delaware - 91 CEI Acquisition Company Delaware Veeder-Root Company 92 Warrick Controls, Inc. Delaware - 93 Danaher Finance Company Delaware - 94 Normandy Court Company Delaware - 95 Houma Realty Company Delaware - 96 Commercial Avenue Company Delaware - 97 JS Technology, Inc. Delaware - 98 DCI Consolidated Industries,Inc. Delaware - 99 Delta Consolidated Industries,Inc. Arkansas - 100 Truck Storage Incorporated Delaware - 101 Hecon Industries Inc. New Jersey - 102 Hecon Properties New Jersey - 103 Joslyn Company, LLC Delaware - 104 Joslyn Manufacturing Co., LLC Delaware - 105 Joslyn Electronic Systems Corp., LLC Delaware - 106 Joslyn Hi-Voltage Corp., LLC Delaware - 107 Joslyn Power Products Corp., LLC Delaware - 108 Joslyn Research & Development Corp. Delaware - 109 Joslyn Clark Controls, LLC Delaware - 110 Sunbank Family of Companies, Inc., LLC Delaware - 111 Joslyn Sunbank Corporation, LLC Delaware - 112 Air Dry Corporation of America, LLC Delaware - 113 Jennings Technology Corporation, LLC Delaware Joslyn Jennings Corp. 114 Jennings Land Company Delaware - 115 Cyberex, LLC Delaware - 116 Cyberex Limited U.K. - 117 Cyberex B.V. Netherlands - 118 Joslyn Foreign Sales Corp. Virgin Islands - 119 Joslyn Canada, Inc. Canada - 120 Joslyn Holding Company Delaware - 121 McCrometer, Inc. Delaware - 122 Kistler-Morse Corporation Delaware - 123 Acme-Cleveland Corp. Ohio - 124 AC Intermediate Co. Ohio - 125 ACMS Incorporated Ohio - 126 Acme-Cleveland Laser Systems Ohio - 127 Acme Communications Technology Systems Corp. Ohio - 128 Amtronx Inc. Ohio - 129 Ball Screws and Actuators Co., Inc. California - 130 Communications Technology Corp. California - 131 Communications Technology (Canada) Ltd. British Columbia - 132 Communications Technology Corp. Mexico, S.A. Mexico - 133 Fire Networks, Inc. Delaware - 134 Dolan-Jenner Industries, Inc. Massachusetts - 135 Dolan-Jenner Europe, B.V. Netherlands - 136 LSMT Corp. Michigan - 137 143420 Ontario. Inc. Ontario - 138 M & M de France, Inc. Ohio - 139 M & M Precision Systems Corp. Ohio - 140 Namco Controls Corp. Ohio - 141 Phoenix Microsystems, Inc. Alabama - 142 TxPort Inc. Delaware - 143 TxPort Data Inc. Canada - 144 Danaher Alberta Inc. Alberta - 145 American Sigma, Inc. New York - 146 Plastifab, Inc. Canada - 147 Sullivan Property Holding Company Delaware - 148 Cleveland Precision Systems Gmbh Germany - EX-13 4 ANNUAL REPORT DANAHER CORPORATION 1998 ANNUAL REPORT SELECTED FINANCIAL DATA
(000's omitted except per share data) 1998 1997 1996 1995 1994 Sales $2,910,038 $2,492,002 $2,233,193 $1,899,463 $1,486,680 Operating profit 366,838 301,0562 67,406 215,992 147,840 Earnings from continuing operations 182,946* 176,606 154,357 128,289 86,404 Per share Diluted 1.32* 1.28 1.13 0.95 0.65 Basic 1.36* 1.32 1.16 0.97 0.66 Discontinued operations -- -- 79,811 2,550 9,331 Per share Diluted -- -- 0.59 0.02 0.07 Basic -- -- 0.60 0.02 0.07 Net earnings 182,946* 176,606 234,168 130,839 95,735 Earnings per share Diluted 1.32* 1.28 1.72 0.96 0.72 Basic 1.36* 1.32 1.76 0.99 0.73 Dividends per share 0.07 0.09 0.08 0.07 0.06 Total assets 2,738,715 2,183,875 2,046,731 1,755,978 1,343,908 Total debt 472,557 199,019 239,927 294,547 204,441
* Includes $28.6 million after-tax costs ($0.21 per share) from the merger with Fluke Corporation 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: Process/Environmental Controls and Tools and Components. In its Process/Environmental Controls segment, the Company is a leading producer of compact electronic test instruments, leak detection sensors for underground fuel storage tanks and motion, position, temperature, pressure, level, flow, water quality and power reliability and quality control devices. 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. Presented below is a summary of sales by business segment (000's omitted). 1998 1997 1996 Process/Environmental Controls $1,615,529 55.5% $1,299,241 52.1% $1,129,750 50.6% Tools and Components 1,294,509 44.5% 1,192,761 47.9% 1,103,443 49.4% $2,910,038 100.0% $2,492,002 100.0% $2,233,193 100.0% Process/Environmental Controls The Process/Environmental Controls segment includes Fluke Corporation, 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 and Pacific Scientific Company, Namco Controls, Dolan-Jenner, M&M Precision Systems, Communications Technology Corporation, Current Technology, Inc., Gems Sensors, Inc. and Dr. Bruno Lange GmbH. These companies produce and sell compact electronic test instruments, underground storage tank leak detection systems and temperature, level, motion and position sensing devices, water/wastewater test and monitoring instruments, power switches and controls, power protection products, aviation safety products, liquid flow measuring devices, 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. 1998 COMPARED TO 1997 Sales in 1998 were 24% higher than in 1997. The acquisitions of Pacific Scientific Company and Dr. Lange GmbH, the full year effect of the Gems Sensors acquisition in August, 1997 and several minor business acquisitions and dispositions provided a 22% increase from 1997. The remainder of the sales change was generated by an increase in unit volume of 2%, with prices essentially flat. Operating margins increased from 13.2% to 13.8%, due to higher sales of environmental products, cost reductions and the elimination of Fluke's 1997 European restructuring activities, offset by lower operating margins of businesses acquired in 1998. 1997 COMPARED TO 1996 Sales in 1997 were 15% 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 9% of the increase. Of the remaining increase, higher unit volume contributed 5% and increased average pricing provided 1%, while foreign currency translation resulted in a 2% decrease. Operating margins decreased from 13.6% to 13.2%, largely from restructuring activities at Fluke's European operations. Tools and Components The Tools and Components segment is comprised of the Danaher Hand Tool Group (including Special Markets, Asian Tools 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. 1998 COMPARED TO 1997 Sales increased 8.5% from 1997 to 1998. Unit volume increases of 10%, offset by price decreases of 1.5%, accounted for this increase. Operating profit margins increased from 12.1% in 1997 to 12.3% in 1998, driven by the higher sales levels and productivity gains. Demand levels were strong across the consumer, professional and international hand tool lines. Sales of diesel engine retarders were also strong in 1998. 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. 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 margin in 1998 was 37.4%, a 1.5 percentage point improvement compared to 1997. Productivity improvements were achieved in all business segments. Higher volume levels and a shift in mix to the higher gross margin products of the acquired companies in the Process/Environmental Controls business segment contributed to the improvement. Gross profit, as a percentage of sales, in 1997 was 35.9%, a 1.0 point decrease compared to the 36.9% achieved in 1996. The Fluke European restructuring was the largest contributor to this decline. A shift in product mix associated with the acquisitions also impacted gross profit. Operating Expenses In 1998, selling, general and administrative expenses were 24.8% of sales, an increase of 1 percentage point from 1997 levels. This principally reflects the higher operating expense levels of the businesses acquired in 1998. Selling, general and administrative expenses for 1997 as a percentage of sales were approximately 1.1 percentage points lower than the 1996 level. This reflects improved fixed cost ratios associated with higher sales levels. Interest Costs and Financing Transactions The Company's debt financing is composed of publicly issued 6% notes due 2008, 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 1998 was $11.7 million higher than in 1997 as average borrowing levels increased due to acquisitions. Interest expense in 1997 was 21% lower than in 1996 due to substantial cash flow generated from operations. Income Taxes The 1998 effective rate of 39.2% is 0.6 percentage points higher than in 1997. This increase results from the nondeductible nature of certain expenses associated with the Company's merger with Fluke Corporation in July, 1998. The 1997 effective tax rate of 38.6% is 0.2 percentage points higher than in 1996, reflecting a greater impact of nondeductible amortization resulting from acquisitions. Inflation The effect of inflation on the Company's operations has been minimal in 1998, 1997, and 1996. Readiness for Year 2000 The Company continues to monitor progress against its Year 2000 Readiness Plan, which is discussed in the Current Report dated July 9, 1998. There have been no significant changes in the plan or cost estimates since that report and progress to date has been in accordance with the timetables described in the plan. The plan described therein includes assessment, remediation, testing and contingency planning. The assessment phase is essentially complete. Remediation and testing activities at the Company's operating units are at various stages, with the majority of work completed on critical systems. Relevant third parties, particularly key suppliers, have been contacted to assess and monitor their Year 2000 readiness. In addition, the Company has developed contingency plans to mitigate the impact of any unsuccessful remediation or third party failures. The Company believes that its overall exposure to Year 2000 impacts is substantially reduced by the diversity of the Company's operations and information systems. The incremental costs associated with the Year 2000 program have not been material to the Company's financial results and are not expected to be significant in the future. However, there can be no assurance that the Company's efforts or those of relevant suppliers and other third parties will be successful or that any potential failure would not have a material adverse effect on the Company's operating results or financial condition. European Monetary Union On January 1, 1999, several member countries of the European Union established fixed conversion rates between their existing currencies and adopted the Euro as their new common legal currency. This Euro conversion may affect cross-border competition and pricing strategies in the broader European market. The new currency also impacts the Company's information systems. In addition, final accounting, tax and governmental legal and regulatory guidance have not been provided. Based on the current state of information and the Company's current assessment, the Euro conversion is not expected to have a material adverse effect on the Company's operating results or financial condition. Financial Instruments and Risk Management The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could impact its results of operations and financial condition. The Company manages its exposure to these risks through its normal operating and financing activities. There were no material derivative instrument transactions during any of the periods presented. The Company has generally accepted the exposure to exchange rate movements relative to its investment in foreign operations without using derivative financial instruments to manage this risk. The fair value of the Company's fixed rate long-term debt is sensitive to changes in interest rates. The value of this debt is subject to change as a result of movements in interest rates. Sensitivity analysis is one technique used to evaluate this potential impact. Based on a hypothetical immediate 100 basis point increase in interest rates at December 31, 1998, the market value of the Company's fixed rate long-term debt would be impacted by a net decrease of $19 million. This methodology has certain limitations, and these hypothetical gains or losses would not be reflected in the Company's results of operations or financial conditions under current accounting principles. Recent Accounting Pronouncements In June, 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new accounting and reporting standards for derivative financial instruments and for hedging activities. This statement is not expected to have a material impact on the Company's results of operations, financial position or cash flows. In March, 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." This statement provides guidance on accounting for the costs of computer software developed or obtained for internal use. The adoption of this statement is also not expected to have a material impact on the Company's results of operations, financial position or cash flows. Liquidity and Capital Resources The Company acquired Pacific Scientific Company for approximately $420 million in cash in March, 1998 and Acme-Cleveland Corporation for approximately $200 million in July, 1996. See Note 2 to Consolidated Financial Statements for a further discussion of the impact of 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, $250 million of the Company's debt is fixed at an average interest cost of 6%, and $71 million is fixed at an interest rate of 7.2%. Substantially all remaining borrowings are short-term in nature and float with referenced base rates. As of December 31, 1998, the Company has unutilized commitments under its revolving credit facility of $250 million. Cash flow has been strong in all periods from 1996 through 1998. Operations generated $331 million, $302 million and $254 million in cash in 1998, 1997 and 1996, respectively. The principal use of funds has been capital expenditures of $90 million, $87 million and $64 million in 1998, 1997 and 1996, respectively, and net cash paid for acquisitions of $526 million, $147 million and $246 million in 1998, 1997 and 1996, 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 an increase in debt of $274 million in 1998, and decreases in debt of $41 million in 1997 and $55 million in 1996. 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, 1998 and 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of Danaher Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Washington, D.C. January 27, 1999 DANAHER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) Year Ended December 31, 1998 1997 1996 Sales . . . . . . . . . . $2,910,038 $2,492,002 $2,233,193 Cost of sales . . . . . . . 1,821,084 1,598,431 1,409,693 Selling, general and administrative expenses.. 722,116 592,515 556,094 Total operating expenses. . 2,543,200 2,190,946 1,965,787 Operating profit. . . . . . . 366,838 301,056 267,406 Other Expense . . . . . . . 40,796 -- -- Interest expense. . . . . . . 24,931 13,211 16,813 Earnings from continuing operations before income taxes 301,111 287,845 250,593 Income taxes. . . . . . . . . 118,165 111,239 96,236 Earnings from continuing operations . . . . . . . . . 182,946 176,606 154,357 Gain on sale of discontinued operations, net of income taxes of $0 . . . .. . . . -- -- 79,811 Net earnings. . . . . . . . $ 182,946 $ 176,606 $ 234,168 Basic earnings per share: Continuing operations . . $1.36 $1.32 $1.16 Discontinued operations . . -- -- .60 Net earnings . . . . . . . $1.36 $1.32 $1.76 Average shares outstanding . . 134,745 133,999 132,950 Diluted earnings per share: Continuing operations . . $1.32 $1.28 $1.13 Discontinued operations . . -- -- .59 Net earnings . . . . . . . $1.32 $1.28 $1.72 Average common stock and common equivalent shares outstanding. . .. . . . . . . 138,885 137,730 136,123 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. DANAHER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) As of December 31, ASSETS 1998 1997 Current assets: Cash and equivalents. .. . . . . . . . . $ 41,923 $ 70,821 Trade accounts receivable, less allowance for doubtful accounts of $24,000 and $19,000.. . . . . . . . . . . . . . . . . 467,108 403,858 Inventories. . . . . . . . . . . . . . . . 323,486 265,122 Prepaid expenses and other. . . . . . . . . 54,387 92,252 Total current assets . . . . . . . . 886,904 832,053 Property, plant and equipment, net. . . . 471,025 403,488 Other assets . . . . . . . . . . . . . . 96,213 84,982 Excess of cost over net assets of acquired companies, less accumulated amortization of $159,000 and $129,000. . . .. . . . . . 1,284,573 863,352 $2,738,715 $2,183,875 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of debt . $ 59,639 $ 35,910 Trade accounts payable . . . . . . . . . . 158,596 152,066 Accrued expenses. .. . . . . . . . . . . . 470,470 392,321 Total current liabilities.. . . . . . 688,705 580,297 Other liabilities. . . . . . . . . . . . . 285,261 301,250 Long-term debt . . . . . . . . . . . . . . 412,918 163,109 Stockholders' equity: Common stock, one cent par value; 300,000 shares authorized; 146,702 and 146,337 issued; 135,107 and 134,741 outstanding.. . 1,467 1,464 Additional paid-in capital. . . . . . . . . 374,412 344,843 Accumulated other comprehensive income .. . (2,703) (13,259) Retained earnings. .. . . . . . . . . . . 978,655 806,171 Total stockholders' equity.. . . . . 1,351,831 1,139,219 $2,738,715 $2,183,875 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, 1998 1997 1996 Cash flows from operating activities: Earnings from continuing operations $182,946 $176,606 $154,357 Depreciation and amortization.. . . . 108,651 91,702 82,424 (Increase)decrease in accounts receivable. 3,393 (54,195) (18,230) Decrease in inventories . . . . . . . 12,543 9,921 40,189 (Decrease)increase in accounts payables (13,625) 23,842 11,145 Change in other assets and liabilities. 37,430 54,455 15,918) Total operating cash flows. . 331,338 302,331 253,967 Cash flows from investing activities: Payments for additions to property, plant and equipment, net . . . . . (90,265) (86,881) (63,981) Disposition of businesses . . . . . 16,250 -- 155,000 Net cash paid for acquisitions. . . . (525,713) (147,238) (246,427) Net cash used in investing activities (599,728) (234,119) (155,408) Cash flows from financing activities: Proceeds from issuance of common stock. 29,572 8,742 8,893 Dividends paid .. . . . . . . . . . . (10,462) (11,932) (11,215) Borrowings (repayments) of debt. .. . 219,177 (40,916) (55,371) Purchase of common stock . . . . . . . -- (19,909) (12,110) Net cash provided by (used in) financing activities. . .. . . . . . 238,287 (64,015) (69,803) Effect of exchange rate changes on cash. 1,205 (897) (299) Net change in cash and equivalents. . . (28,898) 3,300 28,457 Beginning balance of cash and equivalents. 70,821 67,521 39,064 Ending balance of cash and equivalents. $ 41,923 $ 70,821 $ 67,521 Supplemental disclosures: Cash interest payments. . . . . . $ 24,558 $ 13,782 $ 17,458 Cash income tax payments . . . . . $ 66,640 $ 79,972 $ 91,584 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)
Accumulated Other Common Stock Additional Retained Comprehensive Comprehensive Shares Amount Paid-in Capital Earnings Income Income Balance, December 31, 1995 144,597 $1,446 $344,453 $420,089 $6,398 Net earnings for the year. 234,168 $234,168 Dividends declared. . . .. (11,510) Common stock issued for options exercised. . .. . 966 10 13,855 Purchase of common stock . (12,110) Unrealized gain on securities held. . . . . . . . . . . 4,000 4,000 Common stock issued for acquisitions. . . . . . . 594 6 8,877 Decrease from translation of foreign financial statements. (3,949) (3,949) Balance, December 31, 1996 146,157 $1,462 $355,075 $642,747 $6,449 $234,219 Net earnings for the year. . 176,606 176,606 Dividends declared. . . . . (12,278) Common stock issued for options exercised. . . . . 180 2 8,742 Purchase of common stock . . (19,909) Decrease from translation of foreign financial statements. (17,408) (17,408) Unrealized gain on securities held . . . . . . . .. . . . . 1,700 1,700 Sale of securities held . . . (4,000) (3,500) Other . . . . . . . . . . . . 935 (904) Balance, December 31, 1997 146,337 $1,464 $344,843 $806,171 $(13,259) $157,398 Net earnings for the year. 182,946 182,946 Dividends declared. . . . (10,462) Common stock issued for options exercised. . . . 365 3 29,569 Sale of securities held . (1,700) (1,700) Increase from translation of foreign financial statements. 12,256 12,256 Balance, December 31, 1998 146,702 $1,467 $374,412 $978,655 $(2,703) $193,502
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. $29,824,000, $25,786,000 and $22,796,000 of amortization was charged to expense for the years ended December 31, 1998, 1997 and 1996, 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 component of accumulated other comprehensive income within 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. Accumulated Other Comprehensive Income - Consists of the following as of December 31: 1998 1997 1996 Cumulative foreign translation adjustment . . . . . . . . . $ (2,703) $(14,959) $ 2,449 Unrealized gain on securities.. -- 1,700 4,000 $ (2,703) $(13,259) $ 6,449 (2) Acquisitions: On July 9, 1998, Fluke Corporation was acquired and merged into the Company. The Company issued 17,785,122 shares of common stock in exchange for all outstanding Fluke shares. The transaction was a tax-free reorganization and was accounted for as a pooling-of-interests. Accordingly, the financial statements as presented have been restated to reflect the combined companies. Fluke Corporation's year end was a 52/53-week fiscal year ending on the last Friday in April. To combine with the Company, the twelve month periods ending January 23, 1998 and January 24, 1997 for Fluke have been utilized. Fluke is engaged in the manufacture and marketing of compact, professional electronic test tools. Reflected in Other Expense is a one-time charge of $40.8 million ($28.6 million after-tax or $.21 per diluted share) to reflect the costs of the transaction and integrating and implementing efficiencies associated with information, operational and administrative systems. The majority of these costs are cash expenses and have been incurred during 1998. The Company acquired Pacific Scientific Company as of March 9, 1998. Total consideration was approximately $420 million. The fair value of assets acquired was approximately $520 million and approximately $100 million of liabilities were assumed. The transaction is being 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, 1998 1997 Net Sales .. . . . . . . . . $2,981,620 $2,802,462 Net Earnings from continuing operations . . . . . 181,290 169,610 Earnings per share from continuing operations (diluted) $1.31 $1.23 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. 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. (3) Inventory: The major classes of inventory are summarized as follows (000's omitted): December 31, 1998 December 31, 1997 Finished goods. . . $ 122,141 $ 99,983 Work in process. . 74,385 67,056 Raw material . . . . 126,960 98,083 $ 323,486 $ 265,122 If the first-in, first-out (FIFO) method had been used for inventories valued at LIFO cost, such inventories would have been $7,393,000 and $8,940,000 higher at December 31, 1998 and 1997, respectively. (4) Property, Plant and Equipment: The major classes of property, plant and equipment are summarized as follows (000's omitted): December 31, 1998 December 31, 1997 Land and improvements . $ 25,517 $ 23,926 Buildings . . . . .. 174,803 158,872 Machinery and equipment. 712,298 601,689 912,618 784,487 Less accumulated depreciation. (441,593) (380,999) Property, plant and equipment $ 471,025 $ 403,488 (5) Financing: Financing consists of the following (000's omitted): December 31, 1998 December 31, 1997 Notes payable due 2008. . $ 250,000 $ -- Notes payable due 1999-2003 . 71,200 85,900 Other . .. .. . 151,357 113,119 472,557 199,019 Less-currently payable 59,639 35,910 $ 412,918 $ 163,109 The Notes due 2008 were issued in October 1998 at an average interest cost of 6.1%. The Company has complied with covenants relating to limitations on secured debt and sale and leaseback transactions. The carrying amount approximates fair value. The Notes due 1999-2003 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 $73.0 million at December 31, 1998, and was approximately equal to their carrying value as of December 31, 1997. 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 due 1999-2003 and the revolving credit facility. The facility provides funds for general corporate purposes at an interest rate of LIBOR plus .125%. There were no borrowings under the bank facility during the three years ended December 31, 1998. The Company is charged a fee of .075% per annum for the facility. Commitment and facility fees of $187,500, $187,500 and $234,000 were incurred in 1998, 1997 and 1996, respectively. The weighted average interest rate for short-term borrowings was 5.8%, 5.9% and 5.8% for each of the three years ended December 31, 1998. 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: 1999 - $59,639,000; 2000 - $885,000; 2001 - $127,271,000; 2002 - $735,000; 2003 - $30,374,000 and $253,653,000 thereafter. (6) Accrued Expenses and Other Liabilities: Selected accrued expenses and other liabilities include the following (000's omitted): December 31, 1998 December 31, 1997 Current Noncurrent Current Noncurrent Compensation and benefits. $107,386 $46,022 $79,640 $42,883 Claims, including self insurance and litigation 15,051 85,286 12,171 80,452 Post retirement benefits. 5,000 75,500 5,000 75,553 Environmental and regulatory compliance .. . . . . . . . 38,209 67,926 33,465 59,085 Taxes, income and other . . 57,548 1,174 53,457 1,091 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. 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. The following sets forth the funded status of the plans as of the most recent actuarial valuations using a measurement date of September 30 (millions): Pension Benefits Other Benefits 1998 1997 1998 1997 CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $194.6 $164.7 $70.8 $72.2 Service cost 12.0 10.4 0.4 0.4 Interest cost 15.6 14.2 4.9 5.0 Plan participants' contributions -- -- -- -- Amendments (20.0) -- -- -- Actuarial gain 18.4 19.9 0.6 (5.6) Acquisition 65.5 6.7 -- 3.5 Benefits Paid (18.3) (21.3) (3.9) (4.7) Benefit obligation at end of year 267.8 194.6 72.8 70.8 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 232.6 196.9 Actual return on plan assets 5.4 47.5 Acquisition 70.1 6.0 Employer contribution (2.0) (2.0) Benefits paid (18.3) (15.8) Fair value of plan assets at end of year 287.8 232.6 -- -- Funded status 20.0 38.0 (72.8) (70.8) Unrecognized net actuarial (gain) (2.7) (18.1) (7.7) (9.8) Prepaid (accrued) benefit cost $ 17.3 $ 19.9 $ (80.5)$(80.6) WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 6.75% 7.25% 6.75% 7.25% Expected return on plan assets 10.0% 10.0% -- -- For measurement purposes, an 8 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 6 percent by 2002 and remain at that level thereafter. COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $12.0 $10.4 $0.4 $0.4 Interest cost 15.6 14.2 4.9 5.0 Expected return on plan assets (22.0) (18.8) -- -- Recognized net actuarial (gain) (0.3) -- (1.0) (1.0) Net periodic benefit cost $ 5.3 $ 5.8 $4.3 $4.4 The Company acquired Pacific Scientific Company on March 9, 1998, including their pension and postretirement benefit plans. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects: 1-Percentage 1-Percentage Point Increase Point Decrease Effect on total of service and interest cost components. $ 0.5 $ (0.4) Effect on postretirement benefit obligation . . . . . . . . . 7.1 (6.8) 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 $29,581,000, $29,791,000 and $25,894,000 for the years ended December 31, 1998, 1997 and 1996, respectively. (8) Stock Transactions: The common stock of the Company was split two-for-one to holders of record as of May 5, 1998. All common stock and per share amounts have been restated to reflect the stock split for all periods presented. The Company has adopted a non-qualified stock option plan for which it is authorized to grant options to purchase up to 15,000,000 shares. Under the plan, options are granted at not less than existing market prices, expire ten years from the date of grant and generally vest ratably over a five-year period. An option to acquire 2,000,000 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 (thousands) Outstanding at December 31, 1995 (average $7.12 per share) 6,880 Granted (average $18.81 per share) 1,774 Exercised (average $3.88 per share) (967) Cancelled (377) Outstanding at December 31, 1996 (average $10.18 per share) 7,310 Granted (average $24.78 per share) 3,204 Exercised (average $7.63 per share) (180) Cancelled (207) Outstanding at December 31, 1997 10,127 (average $14.86 per share) Granted (average $43.11 per share) 1,154 Exercised (average $9.52 per share) (365) Cancelled (611) Outstanding at December 31, 1998 (at $3.19 to $45.69 per share, average $17.26 per share) 10,305 As of December 31, 1998, options with a weighted average remaining life of 6.6 years covering 5,741,000 shares were exercisable at $3.19 to $30.63 per share (average $10.17 per share) and options covering 3,361,000 shares remain available to be granted. Options outstanding at December 31, 1998 are summarized below: Average Average Average Exercise Number Exercise Remaining Number Exercise Price Outstanding Price Life Exercisable Price (thousands) (thousands) $3.19 to $4.71 1,496 $3.33 1 year 1,496 $3.33 $5.03 to $7.47 1,482 $6.35 4 years 1,482 $6.35 $7.97 to $11.75 1,236 $10.17 6 years 1,121 $10.03 $14.13 to $21.00 1,421 $15.69 7 years 786 $15.48 $21.25 to $30.63 3,665 $24.38 9 years 856 $24.04 $35.19 to $45.69 1,005 $43.11 10 years 0 N/A 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 6% 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 $18 per share in 1998, $10 per share in 1997 and $8 per share in 1996. Had this method been used in the determination of income, net income would have decreased by approximately $7.8 million in 1998, $5.3 million in 1997 and $1.4 million in 1996 and diluted earnings per share would have decreased by $.06 in 1998, $.04 in 1997 and $.01 in 1996. These proforma amounts may not 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 $29,000,000 in 1999, $23,000,000 in 2000, $17,000,000 in 2001, $13,000,000 in 2002, $10,000,000 in 2003 and $22,000,000 thereafter. Total rent expense charged to income for all operating leases was $32,000,000, $25,000,000 and $23,000,000 for the years ended December 31, 1998, 1997, and 1996, 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 Company's maximum indemnification obligation under the contract is approximately $85,000,000. The Company has accepted an agreement in principle to settle all claims. Completion of this settlement agreement will not result in a material adverse effect on the Company's results of operations or financial condition. 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 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 has reached agreement with its insurance carrier which fixes its liability for this matter to a stated amount which will not have a material adverse effect on its results of operations or financial condition. 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): 1998 1997 1996 Federal: Current.. . . . . . . $84,026 $95,249 $69,357 Deferred . . . . . . . 13,091 (1,276) 8,233 State and local. . . . . 6,007 12,925 6,600 Foreign. . . . . . . . . 15,041 4,341 12,046 Income tax provision . . $118,165 $111,239 $96,236 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, 1998 1997 Bad debt allowance .. . . . . $ 8,397 $ 6,686 Inventories . . . . . . . . . 8,183 3,656 Property, plant and equipment. (40,867) (37,478) Post retirement benefits. . . 33,795 32,319 Insurance, including self insurance . . . . . . . 24,316 21,755 Environmental compliance . . . 25,031 26,043 Other accruals . . . . . . . 35,392 47,062 All other accounts . . . . . . (15,873) (7,425) Operating loss carryforwards . -- 15,203 Gross deferred tax asset. 78,374 107,821 Valuation allowances. .. . -- (10,852) Net deferred tax asset . . . . $ 78,374 $ 96,969 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 1998 1997 1996 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.. . . . . . . . . . . . 3.9 3.3 2.9 State income taxes (net of Federal income tax benefit) 1.3 2.9 1.7 Taxes on foreign earnings. . . . . (1.7) (2.6) (1.2) Costs of Fluke merger . . . . . . 0.7 -- -- Effective income tax rate. . . . 39.2% 38.6% 38.4% (12) Segment Data: The Company operates within two major business segments: Process/Environmental Controls and Tools and Components. The Tools and Components segment has a customer which accounted for approximately 10%, 11% and 11% of total sales in 1998, 1997 and 1996, 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, 1998 1997 1996 Total Sales: Process/Environmental Controls $1,615,529 $1,299,241 $1,129,750 Tools and Components 1,294,509 1,192,761 1,103,443 $2,910,038 $2,492,002 $2,233,193 Operating Profit: Process/Environmental Controls $ 222,520 $ 171,141 $ 153,513 Tools and Components 159,225 144,370 128,118 Other (14,907) (14,455) (14,225) $ 366,838 $ 301,056 $ 267,406 Identifiable Assets: Process/Environmental Controls $1,680,998 $1,264,384 $1,130,856 Tools and Components 994,364 832,614 861,345 Other 63,353 86,877 54,530 $2,738,715 $2,183,875 $2,046,731 Liabilities: Process/Environmental Controls $ 542,173 $ 404,883 $ 371,821 Tools and Components 374,726 421,526 412,850 Other 469,985 218,247 256,327 $1,386,884 $1,044,656 $1,040,998 Depreciation and Amortization: Process/Environmental Controls $ 63,540 $ 46,794 $ 42,187 Tools and Components 45,111 44,908 40,237 $ 108,651 $ 91,702 $ 82,424 Capital Expenditures: Process/Environmental Controls $ 50,073 $ 48,577 $ 32,635 Tools and Components 40,192 38,304 31,346 $ 90,265 $ 86,881 $ 63,981 Operations in Geographical Areas - Year Ended December 31, 1998 1997 1996 Total sales: United States . . . . . $2,328,352 $1,979,346 $1,796,303 Germany . . . . . . . . 149,841 115,618 119,149 United Kingdom . . . . . 121,084 121,679 100,710 All other . . . . . . . 310,761 275,359 217,031 $2,910,038 $2,492,002 $2,233,193 Long-lived assets: United States . . . . . $1,765,211 $1,275,514 $1,224,919 Germany . . . . . . . . 22,931 19,187 20,887 United Kingdom . . . . . 21,157 17,570 14,289 All other . . . . . . . 42,512 39,551 40,352 Less: Deferred taxes and financial instruments . . . . . . . . (78,374) (96,969) (98,364) $1,773,437 $1,254,853 $1,202,083 Sales outside the United States: Direct Sales . . . . . . . $ 581,686 $ 512,656 $ 436,890 Exports . . . . . . . . . 230,000 212,000 156,000 $ 811,686 $ 724,656 $ 592,890 (13) Quarterly Data-Unaudited (000's omitted except per share data) 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net Sales . . . $646,240 $736,428 $724,839 $802,531 Gross Profit . . 228,146 273,445 283,987 303,376 Operating Profit 74,014 91,874 99,127 101,823 Net earnings . . 44,203 52,208 28,460* 58,075 Earnings per share: Basic . . . . $.33 $.39 $.21* $.43 Diluted . . . $.32 $.38 $.20* $.42 * Includes $28.6 million after-tax costs ($0.21 per share) from the merger with Fluke Corporation 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net Sales . . . $581,530 $608,369 $626,785 $675,318 Gross Profit . . 198,316 220,824 232,815 241,616 Operating Profit 55,950 76,244 83,084 85,778 Net earnings . . . .31,756 44,838 49,258 50,754 Earnings per share: Basic . .. . . . $.24 $.34 $.37 $.38 Diluted .. . . . $.23 $.33 $.36 $.37 Danaher Corporation and Subsidiaries Major Operating Company Executives A.L. Hyde Company Kurt C. Glaser President American Sigma, Inc. Richard W. Wissenbach President Communications Technology Corporation Benjamin W. Jeffrey President Current Technology, Inc. Joseph W. Roark President Cyberex, Inc. Maureen F. Austin President Danaher Controls James W. Appelgren 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 Dr. Bruno Lange GmbH Hermann E. Braun President Fluke Corporation H. Lawrence Culp, Jr. President Gems Sensors Joseph A. Hahn President Hengstler GmbH Hermann E. Braun President Hennessy Industries, Inc. Vincent E. Piacenti President Jacobs Chuck Manu- facturing Company C. Michael Heath 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 Pacific Scientific Automation Technology Group William T. Fejes, Jr. President Pacific Scientific Company Fisher Pierce Division Steven L. Breitzka President Pacific Scientific Company Instruments Division Daniel A. Pryor President Pacific Scientific Energetic Materials Co. Thomas L. Walsh President Pacific Scientific Safety & Aviation Group Richard G. Knoblock President Partlow/West Corporation Craig B. Purse President QualiTROL Corporation Ronald N. Meyer President Veeder-Root Company Scott G. Clawson President Corporate Officers 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 Chairman of the Executive Committee Danaher Corporation Steven M. Rales 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 SunTrust Bank Atlanta, Georgia 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 1998 1997 High Low High Low First Quarter . . .. 38 3/32 29 1/2 25 20 13/16 Second Quarter . . . 38 7/8 34 25/32 25 15/16 19 13/16 Third Quarter. . . . 45 3/4 30 29 7/32 24 29/32 Fourth Quarter.. . . 54 5/16 29 3/8 31 7/8 26 23/32 High and low per share data are as quoted on the New York Stock Exchange. -----END PRIVACY-ENHANCED MESSAGE-----