7364-8 Nebel cov.edco1B 9/30/02 1:45 PM Page 1 Danaher Corporation 1250 24th Street, NW Suite 800 Washington, D.C. 20037 202 828 0850 Danaher Corporation 1997 Annual Report 7364-8 Nebel cov.edco1B 9/30/02 1:45 PM Page 2 About the Cover: Over a decade ago, the vision of a manufacturing company, dedicated to continuous improvement and customer satisfaction, was conceived during a fishing trip on the Danaher, a tributary to the south fork of the Flat Head River which runs through the Bob Marshall Wilderness in western Montana.The founders of the company adopted the Danaher name for their new organization.The origin of “Danaher” goes back to the root “Dana,” a Celtic word dating from before 700 B.C. and meaning “swift flowing.” As the Danaher Corporation has evolved, the elements of a swift-flowing river have been retained.The company has never strayed from the clarity of its initial vision. The flow of business is ever changing, but the guiding principles remain constant. Over time, the company has grown rapidly in size and success, achieving record levels, again, in 1997. Danaher Corporation Danaher Corporation designs, manufactures and markets industrial and consumer products with strong Contents Financial Highlights Letter to Shareholders brand names, proprietary technology and major market Danaher Business Segments positions in two principal businesses:Tools and Ensuring Future Growth Components and Process/Environmental Controls. Financial Section Management and Directors 1 2 5 6 11 26 Through a focused strategy, Danaher has become a Shareholders’ Information inside back cover leading manufacturer, competing effectively on a global basis by leveraging product value, quality and customer service.Today, Danaher’s 13,200 associates are located in more than 20 countries around the world. Shareholders’ Information 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 ChaseMellon Shareholder Services, LLC Pittsburgh, Pennsylvania 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 First Quarter Second Quarter Third Quarter Fourth Quarter 1997 1996 High 50 517⁄8 587⁄16 633⁄4 Low 415⁄8 395⁄8 4913⁄16 537⁄16 High 371⁄4 431⁄2 431⁄8 465⁄8 Low 291⁄2 361⁄8 361⁄8 401⁄2 High and low per share data are as quoted on the New York Stock Exchange. 7364-8 Nebel fly.edco1B 9/30/02 1:41 PM Page 1 1 7364-8 Nebel fly.edco1B 9/30/02 1:41 PM Page 2 2 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 1 Financial Highlights (000’s omitted, except per share data and number of associates) 1997 1996 Operations: Net sales Operating profit Net earnings from continuing operations Net earnings Earnings per common share (diluted): From continuing operations Net earnings Depreciation expense Capital expenditures, net Number of associates Financial Position at Year-end: Total assets Total debt Stockholders’ equity Total debt as a percent of total capitalization Return on equity Book value per share $2,050,968 $1,811,878 266,885 154,806 154,806 2.57 2.57 52,342 62,808 13,200 226,136 127,959 207,770* 2.13 3.47* 48,168 51,255 11,600 1,879,717 1,765,074 198,247 916,881 236,327 800,261 18% 18.0% 15.68 23% 18.4% 13.59 *Includes gain of $79.8 million, or $1.33 per share, on sale of Fayette Tubular Products subsidiary Net Sales (dollars in millions) Operating Profit (dollars in millions) Earnings Per Share* (in dollars) Year-end Market Price of Stock (in dollars) 19% compounded annual growth rate 35% compounded annual growth rate 37% compounded annual growth rate *From continuing operations 37% compounded annual growth rate 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 2 To Our Shareholders From an idea born more than a decade ago on a remote river in Montana, the Danaher Corporation has evolved into a company with more than $2 billion in annual sales and 13,200 associates around the world. Like the river for which we are named, we remain “swift flowing.” During the last decade, our sales have quadrupled, and our earnings per share have grown sixfold. Danaher is intensely focused on goals and objectives: above-average growth with reduced cyclicality, top-quartile financial performance and superior shareholder value. Our shareholders have been rewarded as Danaher’s stock has appreciated over the past ten years at a 31% compounded annual growth rate.An investment of $100 in Danaher stock on December 31, 1987, with dividends reinvested, was worth $1,405 on December 31, 1997, as compared to $424 for a comparable investment in the S&P 500. 1997 Performance During 1997, Danaher’s sales grew to $2.05 billion, 13% above last year’s record performance. Comparable company sales increased 6% after a 1% negative currency effect, while acquisitions accounted for 7% of our sales growth. Gross margin improved 1% in 1997, following a 1.5% improvement last year, and allowed us to continue increasing investments in marketing and research and development while improving profitability. Both 1997 earnings and earnings per share for continuing operations were up 21% over our record performance in 1996. Operating cash flow increased $61.3 million to a record $278.4 million. Our debt to total capital at year-end was 18%, which provides flexibility to pursue strategic acquisitions while retaining financial strength. Growth Danaher’s business segments,Tools and Components and Process/Environmental Controls, continue to grow faster than the industries in which we participate.We plan to keep exceeding industry growth rates in our existing businesses, to accelerate international growth and to expand through acquisitions. Our corporate plans, which are geared for sustainable competitive advantage, have evolved into four strategic platforms that offer higher growth opportunities: environmental products and services; power quality and reliability; instruments, sensors and controls; and hand tools and related products. In addition, we will continue our focus on high-share global niche businesses. New products will remain a key factor in accelerating growth. In 1997, our sales outside the United States, including both exports and direct sales abroad, reached $487 million, 25% above the prior year, and now constitute 24% of total sales. 2 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 3 Like the river for which we are named, the Danaher Corporation remains “swift flowing.” George M. Sherman President and Chief Executive Officer Acquisitions During 1997, three acquisitions were completed.These acquisitions added approximately $130 million in sales on an annualized basis to our strategic growth platforms.The hand tool companies which we acquired, with facilities in China and Taiwan, provide a manufacturing base from which we can accelerate our growth in select international markets. Current Technology brought new strength to our power quality and reliability platform, and Gems Sensors, a leading global manufacturer of level, flow and pressure sensors, fits well with our instruments, sensors and controls platform. All of these companies have high-growth profiles and complement our existing product lines. In February 1998, we reached an agreement to acquire the Pacific Scientific Company, an international business that designs, manufactures and markets motion control, process control and safety equipment.This acquisition represents an attractive strategic opportunity for our Process/Environmental Controls Business Segment. 3 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 5 Danaher Business Segments 1997 Sales • Tools and Components 58% • Process/Environmental Controls 42% 1997 Operating Profit • Tools and Components 51% • Process/Environmental Controls 49% Tools and Components The Tools and Components Process/Environmental Controls The Process/ Business Segment manufactures and distributes a broad Environmental Controls Business Segment produces a range of hand tools, tool holders, storage containers, hard- broad range of monitoring, sensing, controlling, measuring, ware, wheel service equipment, fasteners and components counting, electrical power quality and telecommunications for consumer, industrial and professional markets. Products products, systems, instruments and components.A major are sold through retail channels; independent mobile tool growth area and focus is environmental products.These distributors; industrial, utility and agricultural distributors; products include underground petroleum storage tank and original equipment manufacturers.Typical hand tool inventory control and leak detection systems, plus water and customers range from do-it-yourselfers and professional/ air quality monitoring devices.The segment’s business lines industrial end-users to automotive mechanics. Component include American Sigma,Anderson Instruments, Clark customers, generally OEMs, include portable drill and Controls, Communication Technology, Current Technology, heavy-duty diesel engine manufacturers. Products from the Cyberex, Danaher Controls, Dolan-Jenner, EIT, Gems Tools and Components Business Segment are marketed Sensors, Hengstler,A.L. Hyde, Jennings Technology, Joslyn under well-recognized brand names, including Allen™, Electronic Systems, Joslyn Hi-Voltage, Joslyn Sunbank, Ammco®,Armstrong®, Coats®, Sears Craftsman®, Delta®, KACO, Kistler-Morse, McCrometer, M&M Precision Holo-Krome®, Jacobs®, Jake Brake®, Joslyn, K-D®, Matco®, Systems, Namco Controls, Partlow, Qualitrol,TxPort, NAPA® and SATA. Veeder-Root,Warrick and West. 5 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 6 Ensuring Future Growth More than a decade ago, the Danaher River inspired a company to respond swiftly to changing environments and to maximize opportunities for future growth.The results in 1997, again, set new records. P ast successes give us comfort, but our challenge is to do even better in the future. Performance will benefit from A Revitalized Company The Joslyn Hi-Voltage Corporation joined the Danaher family in 1995. Joslyn the management philosophy which links all of our associates Hi-Voltage is a leading manufacturer of high-voltage together.The Danaher Business System’s goal is to achieve switches, including advanced electronic controls with a world-class excellence in customer satisfaction.The system power quality focus for electric utilities worldwide. Strategic begins with the voice of the customer and then continuous- products include VerSaVac® and Varmaster®, for high- ly strives to improve quality, delivery and cost.All associates voltage capacitor switching, and TransmasterTM, for switching are drawn into the process and are provided with the tools steel producer’s electric arc furnaces. Products designed to needed to achieve specific business objectives. minimize power outages feature JVRTM auto-recloser, VBMTM sectionalizer and FasTranTM auto-transfer switches. Our record 1997 results came not from one single project When acquired, Joslyn Hi-Voltage had a well-established, but, rather, from a multitude of efforts. New products global electric utility market position but was not growth continue to stimulate markets thought to be mature. oriented. Management quickly embraced the powerful tools Process improvements are leveraged as good ideas are of the Danaher Business System (DBS).The focus was shared among associates throughout the company.The three immediately redirected to quality, delivery and cost with a examples which we have included in this annual report are target to exceed customer expectations and achieve representative of the many stories which, in total, have built double-digit sales growth. a sustainable competitive advantage for Danaher. 6 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 7 At the Joslyn Hi-Voltage facility in Cleveland, Ohio, manufacturing associates produce new products, such as VerSaVac, with reduced development cycles, improved quality and less waste. The Danaher Business System is now a way of life. VerSaVac, built in Cleveland, Ohio, was the initial focus. Cost improvements were significant and remain a focus to Combining DBS with an eager team of associates, the meet growing global demands. DBS efficiency is readily manufacturing system was reconfigured into single-piece apparent by the elimination of the central stockroom. flow work cells, and the operations capacity was nearly Raw materials have been repositioned to point of use, and tripled to meet the 50% annual growth rate experienced KanBan material control principles have been employed to for the past two consecutive years. Manufacturing floor ensure material flow and elimination of waste. Joslyn Hi- space and part travel distance were reduced more than 80%. Voltage’s overall plant space requirements have been reduced A product that had once taken weeks to build was now 35% in the midst of double-digit annual growth.VerSaVac reduced to a few hours. inventory turns increased a factor of four, while plantwide inventory turns doubled. Joslyn Hi-Voltage had an outstanding quality reputation; however, opportunities for improvement were evident. Simultaneous with these internal developments, Quality became the company’s top priority. Using the DBS deregulation of domestic electric utilities and the growing tools of fact-based management and problem solving, quali- electrification of developing countries present new, dynamic ty metrics have improved 50% in each of the last two years. market opportunities and challenges. International growth, combined with Danaher’s marketing and Business System Delivery lead times for VerSaVac were reduced more excellence, has transformed a successful low-growth than 60%. Customers have recognized the improvements company into a growth engine focused on the future. at Joslyn Hi-Voltage with an increasing level of confidence that its premium quality products would be delivered when needed. 7 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 8 Growth in a Mature Industry Since 1992, the Danaher The Armstrong Eliminator Ratcheting System was devel- Hand Tool Group has grown more than twice as fast as oped in conjunction with professional users and distributors. the industry growth rate.The group, with a leading share Our team of product managers and engineers designed a position in mechanics hand tools, is consistently working ratchet that eliminated the drive square, a necessary com- to revamp its extensive product line. Cross-functional teams ponent in traditional ratchets.The new design eliminated involving Sales, Marketing, Engineering and Manufacturing that part of the tool most prone to failure and produced a associates work with customers and end-users to identify ratcheting system that provides 40% greater strength.The product innovations.These breakthrough products are Eliminator is 50% slimmer and provides twice the life of designed to provide greater productivity and convenience existing ratchets on the market today. Feedback from indus- for the end-user. trial distributors has been extremely positive, and initial sales have tripled our most optimistic expectation. The teams work carefully to understand and translate customer requirements into key product features and The Quick Wrench product line is an example of the benefits. Once these targeted needs have been identified impact that new products can have on share and sales and design parameters established, the team quickly brings growth.The Quick Wrench was developed in partnership these products to market.Two recent examples include the with Sears and launched during the fourth quarter of 1997. Quick Wrench™, introduced under the Craftsman brand at This new product provides the user with increased speed, Sears, and the Eliminator™ Ratcheting System, introduced convenience and torque due to its longer size and open-end into the industrial channel of distribution under the geometry. Supported by an extensive program of national Armstrong brand. television advertising and in-store merchandising, Christmas The Danaher Hand Tools Group continues to reinvent itself. New products, including the Quick Wrench and the Armstrong Eliminator Ratcheting System, have resulted in incremental sales growth. Associates at the Springdale, Arkansas, facility have significantly improved quality, delivery and cost in 1997. 8 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 9 season sell-through exceeded our expectations by 50%. Growth through Global Product Development Our Based on this success, current sales projections suggest acquisition of the German company Hengstler, in late 1994, the Quick Wrench will generate a substantial increase in with its strong sales and distribution position in Europe, revenue and profit growth for our customer. provided us with an excellent opportunity to penetrate the rapidly growing global encoder market. Encoders are highly The Quick Wrench is produced in our Springdale,Arkansas, accurate position and motion sensors which are used for a facility, the world’s largest manufacturer of wrenches. wide variety of industrial applications, including elevators, Through the use of the Danaher Business System, Springdale materials handling, packaging and motors. Danaher already not only executed the launch on time, but continued to had an established position in the North American encoder improve all internal measurements of business performance market through its Danaher Controls business.Working as well. Specifically, over the past two years, safety within together, these two businesses analyzed the worldwide the facility has improved by 50%, and product quality, as market and crafted a global product-development plan and measured by defective parts per million, improved by 48%. priority list. Individual engineering centers of excellence Delivery performance above 98% is the best in the industry, worked on projects to meet global market needs, which and the plant was able to deliver 50% more Quick Wrenches eliminated the redundant engineering effort typical of a than our initial expectation for the fourth quarter of 1997. domestic-only focus. Capital investments have been made to meet growing cus- tomer demand and to develop and implement proprietary technology which will ensure product and process leadership well into the next century. Global coordination of new products allows our instruments and controls business to leverage good ideas around the world. Associates in Gurnee, Illinois, produce encoders which have benefited from ideas originated in Germany. 9 7364-8 Nebel 4/c text.edco1B 9/30/02 1:46 PM Page 10 Several major product lines were introduced on a global As is the case with all Danaher products, an important ele- basis. Capital equipment machinery was deployed more ment in the encoders’ success was the Danaher Business efficiently, resulting in 20% lower expenditures. Designs System (DBS). Focused on customer satisfaction, DBS was were significantly improved as the Danaher Controls and key to developing a superior manufacturing process for Hengstler team shared existing concepts, process technology encoders.All production of the new encoders takes place in and new ideas.These new designs had fewer parts, were eas- a cell environment with single-piece flow. For products pro- ier to manufacture and cost less than previous models. duced at Hengstler and Danaher Controls, identical cells are Customer satisfaction increased because lead times, which used, thereby providing greater production flexibility. had been weeks long, were now reduced to days. Hengstler’s KanBan is used to minimize inventory and provide a simple quality improved as its internal product defect rate was visual system for monitoring materials and interfacing with reduced by 58%. suppliers. Finished stocks have been completely eliminated due to the ability to produce locally, utilizing identical man- The new encoder products have been highly successful in ufacturing processes worldwide. Hengstler, alone, has the global market.Within 18 months, five important, new reduced inventory by 40% since the acquisition. product lines have been introduced, offering innovative fea- tures and reduced costs for customers. Sales growth was four Using the DBS approach, impressive and similar results times the market growth rate. Global customers were won, have also been attained for other Hengstler and Danaher and key accounts were gained in new market segments. Controls product lines. 10 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 11 Selected Financial Data (000’s omitted except per share data) 1997 1996 1995 1994 1993 Sales Operating profit $2,050,968 $1,811,878 $1,486,769 $1,113,973 $937,633 266,885 226,136 180,257 124,427 87,058 48,030 0.83 0.84 5,719 0.10 0.10 Earnings from continuing operations 154,806 127,959 105,766 72,319 Per share Diluted Basic Discontinued operations Per share Diluted Basic 2.57 2.63 — — — 2.13 2.18 79,811 1.33 1.36 1.77 1.80 2,550 0.04 0.04 1.24 1.26 9,331 0.16 0.16 Earnings before cumulative effect of accounting change 154,806 207,770 108,316 81,650 53,749 Per share Diluted Basic Cumulative effect of accounting change* Per share* Diluted Basic Net earnings Earnings per common share Diluted Basic Dividends declared Dividends per share Total assets Total debt 2.57 2.63 — — — 3.47 3.54 — — — 1.81 1.85 — — — 1.40 1.42 — — — 0.93 0.94 (36,000) (0.62) (0.63) 154,806 207,770 108,316 81,650 17,749 2.57 2.63 5,887 0.10 3.47 3.54 5,360 0.09 1.81 1.85 4,672 0.08 1.40 1.42 3,710 0.07 0.31 0.31 3,412 0.06 1,879,717 1,765,074 1,485,991 1,105,645 872,472 198,247 236,327 283,587 185,286 133,585 * Adoption of accrual method specified by SFAS No. 106 for post retirement benefits. 11 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 12 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 sub- sidiaries.These businesses are conducted in two business segments:Tools and Components and Process/Environmental Controls. In Tools and Components, the Company is the principal manufacturer of Sears, Roebuck and Co.’s Craftsman® line, National Automo- tive 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. In its Process/Environmental Controls segment, the Company is a leading producer of leak detection sensors for underground fuel storage tanks and motion, position, temperature, pressure, level, flow and power relia- bility and quality control devices. Presented below is a summary of sales by business segment (000’s omitted). Tools and Components Process/Environmental Controls $ 1,192,761 858,207 1997 % 58.2 41.8 2,050,968 100.0 $ 1,103,443 708,435 1,811,878 1996 % 60.9 39.1 100.0 $ 1,005,005 481,764 1,486,769 1995 % 67.6 32.4 100.0 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 Com- pany (“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. Sales in 1997 were 8% higher than in 1996.An acquisition in the first quarter of 1997 accounted for 1997 Compared to 1996 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. Sales in this segment increased 10% from 1995. Of this increase, acquisitions accounted for approxi- 1996 Compared to 1995 mately 5%, higher unit volumes accounted for approximately 5% and increased average pricing accounted for less than 1%. Sales levels were benefitted by particularly strong demand in the mobile tool distribution and storage device areas, offset somewhat by decreased demand for diesel engine retarders as North American and Asian heavy truck production decreased in 1996. Operating margins increased from 11.2% to 11.6%.This margin increase reflects the benefits of the higher sales volumes and continued manufacturing process improvements, offset by the full year effect of the lesser margins associated with the hardware and electrical apparatus lines of JMC. Process/Environmental Controls The Process/Environmental Controls segment includes the Veeder-Root Company, Danaher Controls, Partlow,Anderson Instruments,West Instruments, Ltd., QualiTROL Corporation,A.L. Hyde Company, Hengstler, Ameri- can Sigma, the controls product line business units of Joslyn Corporation, the operating businesses of Acme-Cleveland Corporation (Namco Controls, Dolan-Jenner, M&M Precision Systems,TxPort, Inc., Communications Technology Corporation) and Current Technology, Inc. and Gems Sensors, Inc., both acquired in 1997.These companies produce and sell underground storage tank leak detection systems and temperature, level, motion and position sensing devices, power switches and controls, communication line products, power protection products, liquid flow measuring devices, telecommunication products, 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. 12 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 15 Consolidated Statements of Earnings (in thousands of dollars, except share and per share data) Year Ended December 31, Sales Cost of sales Selling, general and administrative expenses Total operating expenses Operating profit Interest expense Earnings from continuing operations before income taxes Income taxes Earnings from continuing operations Discontinued operations, net of income taxes of $0 and $1,630 1997 1996 1995 $ 2,050,968 $ 1,811,878 $ 1,486,769 1,382,475 401,608 1,784,083 266,885 13,104 253,781 98,975 154,806 1,239,846 345,896 1,585,742 226,136 16,376 209,760 81,801 127,959 1,039,622 266,890 1,306,512 180,257 7,198 173,059 67,293 105,766 (1996—gain on sale; 1995—earnings from operations) — 79,811 2,550 Net earnings Basic earnings per share: Continuing operations Discontinued operations Net earnings Average shares outstanding Diluted earnings per share: Continuing operations Discontinued operations Net earnings $ 154,806 $ 207,770 $ 108,316 $2.63 — $2.63 $2.18 1.36 $3.54 $1.80 .04 $1.85 58,769,164 58,623,470 58,661,849 $2.57 — $2.57 $2.13 1.33 $3.47 $1.77 .04 $1.81 Average common stock and common equivalent shares outstanding 60,256,475 59,954,636 59,862,673 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 15 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 16 Consolidated Balance Sheets (in thousands of dollars) As of December 31, Assets Current assets: Cash and equivalents Trade accounts receivable, less allowance for doubtful accounts of $18,510 and $14,868 Inventories Prepaid expenses and other Total current assets Property, plant and equipment, net Other assets Excess of cost over net assets of acquired companies, less accumulated amortization of $116,357 and $92,583 Liabilities and Stockholders’ Equity Current liabilities: 1997 1996 $ 33,317 $ 26,444 322,600 209,416 53,006 618,339 335,223 72,739 266,668 204,236 49,393 546,741 319,606 105,903 853,416 $1,879,717 792,824 $1,765,074 Notes payable and current portion of debt $ 35,527 $ 16,757 Trade accounts payable Accrued expenses Total current liabilities Other liabilities Long-term debt Stockholders’ equity: Common stock, one cent par value; 125,000,000 shares authorized; 64,275,868 and 64,186,673 issued; 58,478,262 and 58,889,067 outstanding Additional paid-in capital Cumulative foreign translation adjustment and other Retained earnings Treasury stock, at cost; 5,797,606 and 5,297,606 shares Total stockholders’ equity 135,190 353,518 524,235 275,881 162,720 643 336,109 (6,122) 655,692 (69,441) 916,881 110,194 347,622 474,573 270,670 219,570 642 333,587 8,858 506,773 (49,599) 800,261 The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. $1,879,717 $1,765,074 16 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 17 Consolidated Statements of Cash Flows (in thousands of dollars) Year Ended December 31, Cash flows from operating activities Earnings from continuing operations Earnings from discontinued operations Depreciation and amortization Increase in accounts receivable (Increase) decrease in inventories Increase in accounts payable Change in other assets and liabilities Total operating cash flows Cash flows from investing activities: Payments for additions to property, plant and equipment, net Sale of Fayette Tubular Products Net cash paid for acquisitions Net cash used in investing activities Cash flows from financing activities: Proceeds from issuance of common stock Dividends paid Borrowings (repayments) of debt Purchase of common stock Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net change in cash and equivalents Beginning balance of cash and equivalents Ending balance of cash and equivalents Supplemental disclosures: Cash interest payments Cash income tax payments Common stock issued for acquisitions 1997 1996 1995 $ 154,806 $ 127,959 $ 105,766 — 76,116 (46,175) 14,691 19,579 59,355 278,372 (62,808) — (147,238) (210,046) 2,523 (5,887) (38,080) (19,842) (61,286) (167) 6,873 26,444 — 68,626 (11,818) 38,866 10,385 (16,904) 217,114 (51,255) 155,000 (246,427) (142,682) 9,507 (5,065) (48,407) (12,110) (56,075) 149 18,506 7,938 2,550 58,527 (20,098) (15,589) 626 42,374 174,156 (59,172) — (207,941) (267,113) 3,559 (4,672) 98,301 — 97,188 108 4,339 3,599 $ 33,317 $ 26,444 $ 7,938 $ 13,666 $ 66,588 $ — $ 16,981 $ 80,152 $ 8,883 $ 13,699 $ 69,853 $ — The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 17 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 18 Consolidated Statements of Stockholders’ Equity (in thousands of dollars) Common Stock Shares Amount Additional Paid-in Capital Retained Earnings Treasury Stock Cumulative Foreign Translation Adjustment and Other Balance, December 31, 1994 63,198,208 $632 $ 311,648 $ 200,719 $(37,489) $ 590 Net earnings for the year Dividends declared Common stock issued for options exercised Increase from translation of foreign financial statements Balance, December 31, 1995 Net earnings for the year Dividends declared Common stock issued for options exercised Purchase of common stock Unrealized gain on securities held Common stock issued for acquisitions Increase from translation of foreign financial statements Balance, December 31, 1996 Net earnings for the year Dividends declared Common stock issued for options exercised Purchase of common stock Decrease from translation of foreign financial statements Unrealized gain on securities held Sale of securities held Balance, December 31, 1997 — — 208,006 — 63,406,214 — — 483,233 — — 297,226 — 64,186,673 — — 89,195 — — — — — — 2 — 634 — — 5 — — 3 — 642 — — 1 — — — — — — 108,316 (4,672) 3,557 — 315,205 — — 9,502 — — 8,880 — 333,587 — — 2,522 — — — — — — 304,363 207,770 (5,360) — — — — — 506,773 154,806 (5,887) — — — — — — — — — (37,489) — — — (12,110) — — — (49,599) — — — (19,842) — — — 3,008 3,598 — — — — 4,000 — 1,260 8,858 — — — — — — — (12,680) 1,700 (4,000) 64,275,868 $643 $336,109 $655,692 $(69,441) $(6,122) The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 18 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 19 Notes to Consolidated Financial 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 consoli- dated financial statements necessarily includes the use of man- agement’s estimates. Inventory Valuation Inventories include material, labor and overhead and are stated principally at the lower of cost or mar- ket using the last-in, first-out method (LIFO). Property, Plant and Equipment Property, plant and equip- ment 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 equiva- lents, 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. $23,774,000, $20,458,000 and $14,482,000 of amortiza- tion was charged to expense for the years ended December 31, 1997, 1996 and 1995, respectively.When events and cir- cumstances 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 result- ing from foreign currency transactions are generally recognized in net earnings, whereas adjustments resulting from the transla- tion of financial statements are reflected as a separate compo- nent 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 con- sidered permanently reinvested in that operation. Earnings Per Share The computation of diluted earnings per share is based on the weighted average number of com- mon shares and common stock equivalents outstanding during the year. Discontinued Operations In January, 1996, the Fayette Tubu- lar Products subsidiary was sold for approximately $155 mil- lion.A gain of approximately $80 million was recognized in 1996. Net sales for Fayette were $155 million in 1995. Comprehensive Income The total of net income and all other nonowner changes in equity consists of: Year Ended December 31, Net Income Other Comprehensive Income: Currency Translation Unrealized gains on securities: Arising during year Included in net income Comprehensive Income 1997 $154,806 (12,680) 1,700 (3,500) (14,480) $140,326 1996 $207,770 1,260 4,000 — 5,260 $213,030 1995 $108,316 3,008 — — 3,008 $111,324 (2) Acquisitions: The Company obtained control of Acme-Cleveland Corpora- tion (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 mil- lion of excess cost over net assets acquired, and approximately $40 million of liabilities were assumed.The transaction was 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 necessar- ily indicative of the results of operations that actually would 19 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 20 Notes to Consolidated Financial Statements have been achieved had the acquisition been consummated as of that time (unaudited, 000’s omitted): Year Ended December 31, 1996 (4) Property, Plant and Equipment: The major classes of property, plant and equipment are sum- marized as follows (000’s omitted): December 31, 1997 December 31, 1996 Net Sales Net Earnings from continuing operations Earnings per share from continuing operations (diluted) $1,885,700 129,197 $ 2.15 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 the Company 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, including $180 million of excess of cost over net assets acquired, and approximately $100 million of liabilities were assumed.The transaction was accounted for as a step acquisition purchase. Results of opera- tions reflect a minority interest elimination for the two-month period between the change in control and the merger of Joslyn. 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. (3) Inventory: The major classes of inventory are summarized as follows (000’s omitted): December 31, 1997 December 31, 1996 Finished goods Work in process Raw material $ 82,451 54,544 72,421 $209,416 $ 88,083 49,681 66,472 $204,236 If the first-in, first-out (FIFO) method had been used for inventories valued at LIFO cost, such inventories would have been $8,940,000 and $10,959,000 higher at December 31, 1997 and 1996, respectively. Land and improvements Buildings Machinery and equipment Less accumulated depreciation Property, plant and equipment $ 19,369 112,629 466,452 598,450 $ 17,457 107,343 413,636 538,436 (263,227) (218,830) $ 335,223 $ 319,606 (5) Financing: Financing consists of the following (000’s omitted): December 31, 1997 December 31, 1996 Notes payable Other Less-currently payable $ 85,900 112,347 198,247 35,527 $162,720 $100,600 135,727 236,327 16,757 $219,570 The Notes had an original average life of approximately 6.5 years and an average interest cost of 7.2%. Principal amortiza- tion began in December 1995 and continues through April 2003.The estimated fair value of the Notes was approximately equal to their carrying value as of December 31, 1997 and 1996. 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 mainte- nance of working capital, net worth, debt levels, interest cover- age, 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 .125%. Weighted average borrowings under the bank facility were $-0-, $-0- and $5,000,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Maximum amounts out- standing for these years were $-0-, $-0- and $60,000,000, respectively.The Company is charged a fee of .075% per annum for the facility. Commitment and facility fees of $187,500, $234,000 and $216,000 were incurred in 1997, 1996 and 1995, respectively. Interest expense of $7,150,000 is included in discontinued operations for the year ended December 31, 1995.The weighted average interest rate for 20 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 21 Notes to Consolidated Financial Statements short-term borrowings was 5.9%, 5.8% and 6.0% for each of the three years ended December 31, 1997. 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: 1998–$35,527,000; 1999–$43,010,000; 2000–$202,000; 2001–$88,900,000; 2002–$225,000 and $30,383,000 thereafter. (6) Accrued Expenses and Other Liabilities: Selected accrued expenses and other liabilities include the following (000’s omitted): December 31, 1997 December 31, 1996 The expected long-term rate of return on plan assets was 10%. The discount rate used in determining pension cost and benefit obligations was 7.5% at January 1, 1997 and 7.25% at December 31, 1997. Substantially all employees not covered by defined benefit plans are covered by defined contribution plans which gener- ally provide funding based on a percentage of compensation. Pension expense for all plans amounted to $21,269,000, $16,754,000 and $11,870,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 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. Post retirement benefits cost included the following com- Current Noncurrent Current Noncurrent ponents (000’s omitted): Employee compensation Insurance, including self insurance Post retirement benefits Environmental compliance $44,908 $35,284 $43,380 $34,022 7,867 58,160 9,992 48,372 5,000 75,553 5,000 71,819 27,729 49,296 29,725 52,866 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. The following sets forth the funded status of the plans as of the most recent actuarial valuations (000’s omitted): Service cost Interest cost 1997 1996 1995 $ 336 4,058 $4,394 $ 536 4,295 $4,831 $ 298 4,734 $5,032 The following sets forth the program’s funded status (000’s omitted): December 31, 1997 December 31, 1996 Accumulated Post Retirement Benefit Obligation (APBO): Retirees Fully eligible active participants Other active participants Total APBO Net Gains Plan assets Accrued Liability $61,123 $52,387 7,175 2,463 70,761 9,792 — $80,553 10,563 9,243 72,193 4,626 — $76,819 Actuarial present value of benefit obligations: Vested benefit obligation Accumulated benefit obligation Projected benefit obligation Fair value of plan assets (consisting of stocks, bonds and temporary cash investments) Projected benefit obligation (in excess of) or less than plan assets Unrecognized net (gain) loss Unrecognized net asset Pension (liability) prepaid recognized in the balance sheet 21 1997 1996 Assets Exceed Assets Exceed Accumulated Accumulated Accumulated Benefits Benefits Benefits Exceed Assets $131,578 136,087 136,087 166,743 30,656 (22,927) (1,359) $ 6,370 $ 56,216 57,637 57,650 79,226 21,576 (14,360) (487) $ 6,729 $55,587 58,371 58,371 55,040 (3,331) 4,257 (1,129) $ (203) 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 22 Notes to Consolidated Financial Statements A 10% annual rate of increase in per capita costs of covered health care benefits was assumed for 1998, decreasing to 6% by 2002.A 1% increase in the assumed cost trend assumption would increase the APBO by $6.4 million and would have increased 1997 costs by approximately $500,000. Discount rates of 7.25% and 7.50% were used to determine both Plan costs and the APBO as of December 31, 1997 and 1996, respectively. (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 5,000,000 shares. Under the plan, options are granted at not less than 85% of existing market prices, expire ten years from the date of grant and generally vest ratably over a five-year period.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 December 31, 1994 Granted (average $30.71 per share) Exercised (average $9.54 per share) Cancelled Outstanding at December 31, 1995 (average $14.23 per share) Granted (average $37.61 per share) Exercised (average $7.76 per share) Cancelled Outstanding at December 31, 1996 (average $20.35 per share) Granted (average $49.56 per share) Exercised (average $15.25 per share) Cancelled Outstanding at December 31, 1997 (at $5.94 to $60.19 per share, average $29.72 per share) 3,401,102 383,300 (208,006) (136,520) 3,439,876 887,100 (483,233) (188,508) 3,655,235 1,601,900 (89,195) (104,700) 5,063,240 As of December 31, 1997, options with a weighted average remaining life of 4.6 years covering 2,357,086 shares were exer- cisable at $5.94 to $45.63 per share (average $15.20 per share) and options covering 1,452,000 shares remain available to be granted. Options outstanding at December 31, 1997 are summa- 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 recog- nize 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 7% 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 approximately $13 per share in 1995, $15 per share in 1996 and $20 per share in 1997. Had this method been used in the determination of income, net income would have decreased by approximately $5.3 million in 1997 and $1.4 mil- lion in 1996 and diluted earnings per share would have decreased by $.09 in 1997 and $.02 in 1996. Since this amount represents only the proforma effect of options granted since January 1, 1995, there was only a negligible impact on reported net income for 1995, and these proforma amounts are not likely to 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 $17,110,000 in 1998, $14,584,000 in 1999, $10,559,000 in 2000, $7,625,000 in 2001, $6,529,000 in 2002 and $16,260,000 thereafter.Total rent expense charged to income for all operating leases was $18,341,000, $16,009,000 and $16,067,000 for the years ended December 31, 1997, 1996, and 1995, 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 agree- ment, the Company agreed to indemnify the buyer of the sub- sidiary for product liability related to tools manufactured by the subsidiary prior to June 4, 1987.The cases involve approxi- mately 3,000 plaintiffs, in state and federal courts in multiple states.All other major U.S. air tool manufacturers are also rized below: Exercise Price $ 5.94 to $ 8.50 $ 9.00 to $13.50 $14.94 to $22.25 $22.63 to $28.88 $31.13 to $45.63 $45.88 to $60.19 Average Number Outstanding Average Exercise Price Average Remaining Life Number Exercisable 810,350 700,626 523,884 574,360 1,472,920 981,100 $ 6.70 $12.12 $17.65 $26.33 $40.84 $53.41 22 2 years 5 years 6 years 7 years 9 years 10 years 810,350 615,626 413,916 283,816 233,378 — Exercise Price $ 6.70 $11.93 $17.61 $25.79 $36.54 — 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 23 A subsidiary of the Company has sold, with limited recourse, certain of its accounts and notes receivable.A provi- sion 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): 1997 1996 1995 Current: Federal State and local Foreign Total current Deferred: Federal Other Total deferred Income tax provision $ 85,653 10,625 4,800 $101,078 (1,963) (140) (2,103) $ 98,975 $62,908 5,000 7,000 $74,908 6,449 444 6,893 $81,801 $62,225 7,000 4,000 $73,225 (5,917) (15) (5,932) $67,293 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 oper- ating loss carryforwards exist) consist of the following (000’s omitted): December 31, 1997 1996 Bad debt allowance Inventories Property, plant and equipment Post retirement benefits Insurance, including self insurance Environmental compliance Other accruals All other accounts Operating loss carryforwards Gross deferred tax asset Valuation allowances Net deferred tax asset $ 6,386 (773) (32,470) 32,319 21,755 26,043 41,730 (1,341) — 93,649 — $ 93,649 $ 5,505 (171) (29,100) 30,552 18,920 28,102 42,559 (4,793) 8,265 99,839 (8,265) $ 91,574 Notes to Consolidated Financial Statements defendants.The gravamen of these complaints is that the defendants’ air tools, when used in different types of manufac- turing 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 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 physi- cal injuries, and property devaluation resulting from wood treating operations previously conducted at a Louisiana site. The size of the class, 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 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 liti- gation and other pending legal proceedings will not have a materially adverse effect on the Company’s results of opera- tions or financial condition, notwithstanding any related insur- ance recoveries. 23 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 24 Notes to Consolidated Financial Statements The effective income tax rate for the years ended December 31 varies from the statutory Federal income tax rate as follows: The detail segment data is presented in the following table (000’s omitted): Percentage of Pre-Tax Earnings Operations in Different Industries— 1997 1996 1995 Year Ended December 31, 1997 1996 1995 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 State income taxes (net of Federal income tax benefit) Taxes on foreign earnings Effective income tax rate 3.7 3.4 2.9 2.7 2.6 1.6 (1.0) (1.6) (2.4) 39.0% 39.0% 38.9% (12) Segment Data: The Company operates within two major business segments: Tools and Components and Process/Environmental Controls. The Tools and Components segment has a customer which accounted for approximately 13%, 14% and 16% of total sales in 1997, 1996 and 1995, 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. Total Sales: Tools and Components $1,192,761 $1,103,443 $1,005,005 Process/ Environmental Controls Operating Profit: Tools and 858,207 481,764 $2,050,968 $1,811,878 $1,486,769 708,435 Components $ 144,370 $ 128,118 $ 112,981 Process/ Environmental Controls Other Identifiable Assets: Tools and 136,970 80,804 (13,528) $ 266,885 $ 226,136 $ 180,257 112,243 (14,225) (14,455) Components $ 832,614 $ 861,345 $ 821,604 Process/ Environmental Controls Other Depreciation and Amortization: Tools and 960,226 599,466 64,921 $1,879,717 $1,765,074 $1,485,991 849,199 54,530 86,877 Components $ 44,908 $ 40,237 $ 35,211 Process/ Environmental Controls Capital Expenditures: Tools and 31,208 76,116 $ 28,389 68,626 $ 23,316 58,527 $ Components $ 38,304 $ 31,346 $ 48,500 Process/ Environmental Controls 24,504 62,808 $ 19,909 51,255 $ 10,672 59,172 $ 24 7364-8 Nebel finan.edco1B 9/30/02 1:44 PM Page 25 Notes to Consolidated Financial Statements Operations in Geographical Areas— Year Ended December 31, 1997 1996 1995 Total Sales: United States Europe Other Operating Profit: United States Europe Other Identifiable Assets: United States Europe Other Sales outside United States: Direct Sales Exports $1,727,086 222,245 101,637 $2,050,968 $ 234,662 21,959 10,264 $ 266,885 $1,521,393 281,701 76,623 $1,879,717 $ 323,882 163,000 $ 486,882 $1,565,110 205,416 41,352 $1,811,878 $ 207,433 15,107 3,596 $ 226,136 $1,552,665 188,660 23,749 $1,765,074 $ 246,768 144,000 $ 390,768 $1,235,933 205,228 45,608 $1,486,769 $ 156,170 20,348 3,739 $ 180,257 $1,292,166 173,949 19,876 $1,485,991 $ 250,836 107,000 $ 357,836 (13) Quarterly Data-Unaudited (000’s omitted except per share data) Net sales Gross profit Operating profit Net earnings Earnings per share: Basic Diluted Net sales Gross profit Operating profit Earnings from continuing operations Gain on sale from discontinued operations Net earnings Basic earnings per share: Continuing operations Discontinued operations Net earnings Diluted earnings per share: Continuing operations Discontinued operations Net earnings 1997 1996 2nd Quarter $502,789 164,064 65,942 38,258 $ $ .65 .64 2nd Quarter $ 434,897 137,988 56,302 32,525 — 32,525 $ $ $ $ .56 — .56 .54 — .54 3rd Quarter $516,601 173,134 71,383 41,781 $ $ .71 .69 3rd Quarter $ 470,787 149,021 60,293 33,577 — 33,577 $ $ $ $ .57 — .57 .56 — .56 4th Quarter $565,137 183,815 74,103 43,232 $ $ .74 .72 4th Quarter $ 496,637 160,730 62,413 34,929 — 34,929 $ $ $ $ .59 — .59 .58 — .58 1st Quarter $466,441 147,480 55,457 31,535 $ $ .53 .52 1st Quarter $ 409,557 124,293 47,128 26,928 79,811 106,739 $ $ $ $ .46 1.37 1.83 .45 1.34 1.79 25