-----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, JccF3efO6u7VeLM4Ppu3B06OkuoKfC8XTWysVWuo4qvZOKdZMXWdBvzqyuew1JQk w2C2zUvn87OZHrfRDyMxLQ== 0000313616-96-000009.txt : 19960705 0000313616-96-000009.hdr.sgml : 19960705 ACCESSION NUMBER: 0000313616-96-000009 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960702 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960703 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANAHER CORP /DE/ CENTRAL INDEX KEY: 0000313616 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 591995548 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08089 FILM NUMBER: 96591238 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 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) July 2, 1996 DANAHER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1-8089 59-1995548 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1250 24th Street, N.W. Washington, D.C. 20037 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 202-828-0850 (Former name or former address, if changed since last report.) Item 2. Acquisition of Assets On July 2, 1996, Danaher Corporation acquired controlling interest (100% ownership will be completed in 1996) of Acme- Cleveland Corporation. The total cost of acquisition will be approximately $210 million, inclusive of acquisition costs. The acquisition will be accounted for as a purchase. Acme-Cleveland is an Ohio corporation with its principal executive offices located at 30100 Chagrin Blvd., Suite 100, Pepper Pike, OH 44124-5705. The following description of the Company's business has been taken from Acme-Cleveland's 1995 10-K. Acme-Cleveland has two major business segments: (i) Telecommunication and Electronic Products and (ii) Precision Products. The Telecommunication and Electronic Products business segment is comprised of product businesses that are based largely on applied electronic technology. Products in this segment are used in the construction, maintenance, and operation of telecommunication networks, and in industrial process applications to collect and transmit information regarding the presence, location, and physical attributes of various objects or materials. The Precision Products business segment is comprised of product businesses that are based on, or relate to, precision measurement and analysis and other technologies having precision needs and requirements. This segment includes quality assurance products and system, motion and positioning components and systems, precision gauges, metal and punch form tooling, and specialty gears. Purchases of quality assurance products and systems and certain motion and positioning components are typically made as part of capital expenditure programs and can be deferred; the other products in this segment are usually purchased used in the course of day-to-day operations, and the purchase of such items cannot ordinarily be deferred. Item 7. Exhibits (a) Attachment 1 contains financial statements of Acme- Cleveland as specified under Rule 3.05(b) 1. Years ended September 30, 1995, 1994, 1993 2. Three Months Ended March 31, 1996 (b) Attachment 2 contains pro-forma financial statements and explanatory notes as per Article 11. 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/ C. Scott Brannan C. Scott Brannan Vice President and Controller ATTACHMENT 1 Financial Highlights 06/20/96 10:11 AM YE\AR#WONA95.doc Acme-Cleveland Corporation and Subsidiaries In thousands, except per share data and statistical information Year Ended September 30 1995 1994 1993 Operating highlights Net sales. . . . . . $120,716 $77,200 $81,510 Earnings from continuing operations before extraordinary item and cumulative effect of accounting changes 3,791 2,511 . . 4,792 Per common share . . . . . .56 .35 .71 . . . . . Discontinued operations before extraordinary item and cumulative effect of accounting changes. . 38,712 3,989 438 . Per common share . . . . . 5.74 .63 .06 . . . . . Extraordinary item . -0- -0- 1,900 . . . . . Per common share . . -0- -0- .30 Cumulative effect of accounting changes. . . -0- (29,921). . -0- Per common share . -0- (4.75) -0- Net earnings (loss) . . . . . 42,503 (23,421). 7,130 Per common share . 6.30 (3.77). .1.07 Balance sheet highlights Cash and securities. . . . . . 44,658 38,563. .37,808 Total assets . . . . 140,253 105,647 123,889 Total debt . . . . . 1,056 1,926 3,423 . . . . . Shareholders' equity . . . . . 84,901 33,713. .64,823 Percentage of debt to capital. . . 1.2% 5.4% 5.0%. . . . . Other information - continuing operations Customer orders booked . . . . 124,053 77,947. .78,637 Customer order backlog . . . . 13,469 8,740 8,497 . . . . . Capital additions. . 5,050 2,152 1,514 . . . . . Depreciation . . . . 2,881 2,625 2,212 . . . . . Dividends paid . . . 3,257 3,060 2,870 . . . . . Dividends per common share . .47 .44 .41 . . . . . The information in this summary should be read in conjunction with the financial statements beginning on page 18. Consolidated Balance Sheets Acme-Cleveland Corporation and Subsidiaries In thousands, except share data September 30 Assets 1995 1994 Current assets Cash and cash equiva lents $ 44,658 $ 38,35 5 Market able securi ties - 0- 208 Trade receiv ables less allowa nce of $602 ($1,06 3 in 1994) 18,633 14,74 5 Invent ories: Finish ed goods 5,231 7,550 Work in proces s 8,430 4,581 Raw materi als 11,855 6,992 Total invent ories 25,516 19,12 3 Other curren t asset s 814 892 Deferr ed income taxes 6,377 3,613 Net assets of discon tinued operat ions - 0- 3,324 Total current assets 95,998 80,260 Property, plant, and equipment at cost Land 1,622 2,224 Buildi ngs 13,917 18,72 8 Machin ery and equipm ent 28,500 40,073 44,039 61,02 5 Less accumu lated deprec iation 28,044 45,256 Net property, plant, and equipment 15,995 15,769 Goodwill and intangibles. . . . . . . . . . . . . . . . . . . . .24,456 . . . . . . . . . . . . . . . 2,059 Minority equity investments . . . . . . . . . . . . . . . . . . . . -0- . . . . . . . . . . . . . . . . . . 505 . . . . . . . . . . . . . . . . Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,534 . . . . . . . . . . . . . 2,834 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 270 . . . . . . . . . . . . . . 4,220 . . . . . . . . . . . . . . . Total assets $140,253 $105,647 September 30 Liabilities and Shareholders' Equity 1995 1994 Current liabilities Payabl e to banks $ 1,620 $ 1,634 Curren t portio n of long- term debt 306 630 Accoun ts payabl e 5,995 3 ,918 Other accrue d expens es 8,857 6,200 Advanc e paymen ts from custom ers 238 1,5 22 Accrue d compen satio n 9,593 9 ,610 Postem ployme nt benefi ts other than pensio ns 401 3,567 Other accrue d taxes 1,665 1,686 Income taxes payabl e 4,470 1,896 Net liabil ities of discon tinued operat ions 13,140 -0- Total current liabilities 46,285 30,663 Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 687 . . . . . . . . . . . . . . . . . . 1,219 . . . . . . . . . . . . . . . Postemployment benefits other than pensions . . . . . . . . . . . . . . . . 3,431 . . . . . . . . . . . . . . . . . . 28,138. . . . . . . . . . . . . . . Unfunded pension costs. . . . . . . . . . . . . . . . . . . . . . 3,857 . . . . . . . . . . . . . . . . . . 10,965. . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . 808 . . . . . . . . . . . . . . . . . . 754 . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 284 . . . . . . . . . . . . . . . . . . 195 . . . . . . . . . . . . . . . . Shareholders' equity Serial Prefer red Shares , withou t par value: Authorized - 936,285 shares; issued and outstanding Series A, $1.80 cumulative, convertible 161,374 shares . 3,631. . . 3,631 . . . . . . . . . . . . . . . Common Shares , par value $1 per share: Authorized - 10,000,000 shares; issued and outstanding, excluding 115,056 held in treasury . . . 6,405. . . 6,300 . . . . . . . . . . . . . . . Other capita l 55,148 53,71 7 Pensio n adjust ment (3,736 ) (11,43 9) Foreig n curren cy transl ation adjust ments 1,848 (855) Retain ed earnin gs 21,605 (17,64 1) Total shareholders' equity 84,901 33,713 Total liabilities and shareholders' equity $140,253 $105,647 See notes to consolidated financial statements. Statement of Consolidated Operations Acme-Cleveland Corporation and Subsidiaries In thousands, except per share data Year Ended September 30 1995 1994 1993 Net sales . . . . . . . . $120,716. . . . . $77,200 $81,510 . . . . . . . . . Cost of products sold . . 71,352. . . . . . 49,921 52,692. . . . . . . . . . Gross profit 49,364 27,279 28,818 Selling, general, and administrative expense. . . . . . 30,282. . . . . . .21,281 19,152 Research and development expense. . 3,949 . . . . . . . 1,945 1,306 Amortization of goodwill and intangibles. . . 1,210 . . . . . . 259 225 35,441 23,485 20,683 Earnings from operations 13,923 3,794 8,135 Other income (expense): Interest income 1,743 986 684 Interest expense (144) (166) (205) Other income 618 901 1,496 Other expense (563) (899) (1,993) Purchased research and development write-off (5,693) -0- -0- (4,039) 822 (18) Earnings from continuing operations before income taxes, minority interest, extraordinary item, and cumulative effect of accounting changes 9,884 4,616 8,117 Income taxes. . . . . . . 6,245 . . . . . . . 1,989 3,325 . . . . . . . . . . Minority interest . . . . 152 . . . . . . . (116) -0- . . . . . . . . . . . . . Earnings from continuing operations before extraordinary item and cumulative effect of accounting changes 3,791 2,511 4,792 Discontinued operations before extraordinary item and cumulative effect of accounting changes: Earnings from operations, net of income taxes . . . . 13,985. . . . . . . 3,989 438 . . . . . . . . . . . Net gain on sale (less income taxes of $1,500) . . . . . . . . . 24,727 -0- . . . . . . . . . -0- 38,712 3,989 438 Extraordinary item utilization of tax benefit carryforwards . . . . . . -0- . . . . . . . . . . . -0- 1,900 . . . . . . . . . . Cumulative effect of accounting changes: From continuing operations. . . -0- . . . . . . . . . . 3,389 -0- . . . . . . . . . . . . . From discontinued operations. . -0- . . . . . . . . (33,310) -0- . . . . . . . . . . . . . -0- (29,921) -0- Net earnings (loss) $ 42,503 $(23,421) $ 7,130 Earnings (loss) per common share: Continuing operations before extraordinary item and cumulative effect of accounting changes $ .56 $ .35 $ .71 Discontinued operations before extraordinary item and cumulative effect of accounting changes: Earnings from operations, net of income taxes 2.07 .63 .06 Net gain on sale 3.67 -0- -0- 5.74 .63 .06 Extraordinary item -0- -0- .30 Cumulative effect of accounting changes: From continuing operations -0- .54 -0- From discontinued operations -0- (5.29) -0- -0- (4.75) -0- Net earnings (loss) per common share $ 6.30 $ (3.77) $ 1.07 See notes to consolidated financial statements. Statement of Consolidated Shareholders' Equity Acme-Cleveland Corporation and Subsidiaries In thousands, except per share data Foreign Currency Preferred Common Other Pension Translation Retained Shares Shares Capital Adjustment Adjustments Earnings Balance at October 1, 1992. . . . $ 3,631 $ 6,291 $53,651. .$(3,952) $ 343 $ 4,580 Net earnings. . . . . . . . 7,130 Cash dividends: Series A preferred shares, $1.80 (290) Common shares, $.41 (2,580) Foreign currency translation adjustments . . . . . (1,416) Pension adjustment . . . . . . . . (2,565) _ Balance at September 30, 1993. . 3,631 6,291 53,651 . .(6,517) (1,073) 8,840 Net loss . . . . . . (23,421) Common shares issued under stock option plan . . 9 66 Cash dividends: Series A preferred shares, $1.80 (290) Common shares, $.44 (2,770) Foreign currency translation adjustments . . . . . 218 Pension adjustment . . . . . . . . (4,922) _ Balance at September 30, 1994. . 3,631 6,300 53,717 . .(11,439) (855)(17,641) Net earnings. . . . . . . . 42,503 Common shares issued under stock option plan . . 105 879 Tax benefit from exercise of stock options. 552 Cash dividends: Series A preferred shares, $1.80 (290) Common shares, $.47 (2,967) Foreign currency translation adjustments . . . . . 2,703 Pension adjustment . . . . . . . . 7,703 _ . . . . . Balance at September 30, 1995. . $ 3,631 $ 6,405 $55,148. .$(3,736) $ 1,848 $21,605 See notes to consolidated financial statements. Statement of Consolidated Cash Flows Acme-Cleveland Corporation and Subsidiaries In thousands Year Ended September 30 1995 1994 1993 Operating activities E a r n i n g s f r o m o p e r a t i o n s b e f o r e e x t r a o r d i n a r y i t e m a n d c u m u l a t i v e e f f e c t o f a c c o u n t i n g c h a n g e s : C o n t i n u i n g $ 3 , 7 9 1 $ 2 , 5 1 1 $ 4 , 7 9 2 D i s c o n t i n u e d 3 8 , 7 1 2 3 , 9 8 9 4 3 8 A d j u s t m e n t s t o r e c o n c i l e e a r n i n g s t o n e t c a s h p r o v i d e d b y o p e r a t i n g a c t i v i t i e s : D e p r e c i a t i o n a n d a m o r t i z a t i o n 4 , 0 9 1 2 , 8 8 4 2 , 4 3 7 ( G a i n ) l o s s o n s a l e o f p r o p e r t y , p l a n t , a n d e q u i p m e n t ( 2 8 7 ) ( 2 6 5 ) 1 1 9 P u r c h a s e d r e s e a r c h a n d d e v e l o p m e n t w r i t e - o f f 5 , 6 9 3 - 0 - - 0 - U n d i s t r i b u t e d l o s s o f m i n o r i t y e q u i t y i n v e s t m e n t s 5 0 5 2 7 4 4 0 4 D e f e r r e d i n c o m e t a x ( 1 0 , 6 9 0 ) 1 , 4 0 2 1 0 9 G a i n o n s a l e o f s u b s i d i a r y ( 2 4 , 7 2 7 ) - 0 - - 0 - C a s h p r o v i d e d b y d i s c o n t i n u e d o p e r a t i o n s 5 6 0 2 , 5 8 9 4 , 0 2 5 E x t r a o r d i n a r y i t e m - u t i l i z a t i o n o f t a x b e n e f i t c a r r y f o r w a r d s - 0 - - 0 - 1 , 9 0 0 Changes in operating assets and liabilities excluding the effects of acquisitions and divestitures: (Increase) decrease in trade receivables (5,035) (80) (353) (Increase) decrease in inventories (4,619)(3,132) 3,794 (Increase) decrease in other current assets 242 (350) 489 Increase (decrease) in payable to banks (232) (492) 425 Increase (decrease) in accounts payable 1,943(1,112) (41) Increase (decrease) in other accrued liabilities (1,294)1,559 (1,691) Increase (decrease) in accrued compensatio n 2,067(1,091) 1,949 Increase (decrease) in income taxes payable 2,044 284 (301) Increase (decrease) in postemploym ent benefits other than pensions (1,515) 54 -0- Increase (decrease) in unfunded pension costs 503 (284) (554) Other, net (1,196) (548) (686) Net cash provided by operating activities 10,556 8,192 17,255 Investing activities C a p i t a l e x p e n d i t u r e s ( 4 , 2 3 3 ) ( 2 , 6 5 7 ) ( 1 , 8 7 3 ) P r o c e e d s f r o m s a l e o f p r o p e r t y , p l a n t , a n d e q u i p m e n t 1 , 0 3 1 7 9 3 5 1 R e d e m p t i o n o f s e c u r i t i e s , n e t 2 0 8 4 1 5 4 1 5 N e t p r o c e e d s f r o m s a l e o f s u b s i d i a r y 3 8 , 6 2 4 - 0 - - 0 - A c q u i s i t i o n s - n e t o f c a s h a c q u i r e d ( 3 5 , 8 1 6 ) - 0 - - 0 - C a s h u s e d f o r d i s c o n t i n u e d o p e r a t i o n s ( 2 8 7 ) ( 1 , 7 4 2 ) ( 3 , 3 6 1 ) Net cash used by investing activities (473) (3,191) (4,768) Financing activities P r i n c i p a l p a y m e n t s o n l o n g - t e r m d e b t a n d n o t e s p a y a b l e ( 1 , 6 1 1 ) ( 2 8 2 ) ( 2 5 0 ) P r i n c i p a l b o r r o w i n g s o n l o n g - t e r m d e b t a n d n o t e s p a y a b l e 9 5 9 7 9 2 E x e r c i s e o f s t o c k o p t i o n s 1 , 5 3 6 7 5 - 0 - D i v i d e n d s p a i d ( 3 , 2 5 7 ) ( 3 , 0 6 0 ) ( 2 , 8 7 0 ) C a s h u s e d f o r d i s c o n t i n u e d o p e r a t i o n s ( 8 5 8 ) ( 7 5 9 ) ( 8 6 9 ) Net cash used by financing activities (4,095) (3,929) (3,897) Effect of exchange rate changes on cash . . . . 315 . . . . . . . . . 98 (12). . . . . . . . . . . . . Increase in cash and cash equivalents 6,303 1,170 8,578 Cash and cash equivalents at beginning of year. 38,355. . . . . . . . 37,185 28,607. . . . . . . . . . . . Cash and cash equivalents at end of year $44,658 $38,355 $37,185 See notes to consolidated financial statements. Notes to Consolidated Financial Statements Acme-Cleveland Corporation and Subsidiaries Note A Accounting Policies Acme-Cleveland Corporation and its subsidiaries' accounting and reporting policies conform to generally accepted accounting principles and to industry practices. Significant accounting policies and practices are described below: Consolidation The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. In addition, minority equity investments in other companies are stated at cost plus the Company's equity in undistributed earnings. Upon consolidation, all significant intercompany items are eliminated. Foreign Currency Translation - Financial statements for the Company's subsidiaries outside the United States are translated into U.S. dollars at year-end exchange rates for assets and liabilities and weighted average exchange rates for income and expenses. The resulting translation adjustments are recorded as a separate component of shareholders' equity. Fair Values of Financial Instruments - The carrying amount reported in the balance sheets for cash and cash equivalents approximates their fair value. All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Cash Flow Information Payments for interest and income taxes were (in thousands): 1995 1994 1993 Interest. . . . $ 194 $ 332 $ 430 Income taxes. . 8,120 1,960 2,980 Inventories Inventories are priced at the lower of cost or market. Inventories are principally valued on the first-in, first-out (FIFO) method. Inventories not valued by the FIFO method are valued using the last-in, first-out (LIFO) method which comprised 9% and 46% of consolidated inventories at September 30, 1995 and 1994, respectively. Goodwill and Intangibles Goodwill is the difference between the purchase price and the fair market value of net assets acquired in business combinations treated as purchases. Goodwill is amortized on a straight-line basis over the periods benefited, principally 10 to 40 years. The carrying value of goodwill is assessed for impairment on an ongoing quarterly basis and adjusted when appropriate. Other acquired intangible assets, to which acquisition cost has been allocated based on fair market value, include research and development, customer lists, trade names, assembled workforce, drawings and manuals, and patents. All other intangibles are amortized on a straight-line basis over the periods benefited, generally 5 to 20 years. The accumulated amortization of goodwill and intangibles at September 30, 1995 and 1994 was $2,378,000 and $1,168,000, respectively. Other Income Other income included a litigation settlement of $1,225,000 in 1993 and gains from sales of assets of $131,000 in 1995 and $202,000 in 1993. Depreciation Depreciation is generally computed using the straight-line method over the estimated useful lives of assets. Research and Development Expense Research and development expenditures are charged to continuing operations as incurred. Amounts expensed, portions of which were included in cost of products sold, were $5,343,000, $3,201,000, and $2,553,000, in 1995, 1994, and 1993, respectively. Provision for Warranty Claims Estimated warranty costs are provided at the time of sale of the warranted products. Income Taxes The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," effective October 1, 1993. The Company has elected not to restate the financial statements of years prior to 1994. This accounting statement requires the use of the liability method for income taxes rather than the previously used deferred method. Under the liability method, deferred tax assets and liabilities are determined by the differences between the financial statement amounts of existing assets and liabilities and their respective tax bases. These differences are measured using the current enacted tax rates. Under the deferred method, deferred income taxes are provided on items recognized in different periods for financial reporting purposes than for income tax purposes. These differences were measured at the effective tax rate in the year of origination. The Company's subsidiaries outside the U.S. compute taxes at rates in effect in the various countries in which they operate. Earnings of these subsidiaries may also be subject to additional income and withholding taxes when they are distributed as dividends. These additional taxes, net of applicable tax credits, are accrued currently, except with respect to earnings which are not expected to be remitted because they are permanently reinvested. Undistributed earnings of non-U.S. subsidiaries deemed to be permanently reinvested were approximately $1,800,000 at September 30, 1995. Net Earnings (Loss) per Common Share Net earnings per common share are based on the weighted average number of common shares outstanding during the period, the dilutive effect of stock options and other common stock equivalents, and, if dilutive, the assumed conversion of the Series A Preferred Shares. Net loss per common share is based on the weighted average number of common shares outstanding after increasing the amount of the loss by the dividend requirements on the Series A Preferred Shares. Litigation The Company is subject to legal proceedings and claims which have arisen in the ordinary course of its business that have not been finally adjudicated. These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material adverse effect upon the financial position or results of operations of the Company. Environmental Costs Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that these costs will be incurred and can be reasonably estimated. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. Note B Discontinued Operations and Sale of Subsidiary Subsequent to Year-End On November 1, 1994 the Company sold all of the common shares of its wholly-owned subsidiary, The Cleveland Twist Drill Company (CTD). This sale resulted in a net gain of $24,727,000, or $3.67 per common share. Under the terms of the stock purchase agreement, the Purchaser paid $45,200,000 in cash and assumed substantially all liabilities related to the business. The purchase agreement provides for the Company to make contingent payments up to 20% of the purchase price, less a $750,000 deductible, for costs associated with a breach of any representation or warranty contained in the agreement. The contingency period ranges between 15 and 24 months subsequent to the sale date. The Company does not anticipate any material charges related to this contingency. CTD manufactured cutting tools used in a wide range of industrial, specialty aerospace, and special tool applications. CTD had operations in the United States, Mexico, and Canada. On October 23, 1995, subsequent to year- end, the Company sold all of the common shares of its wholly-owned second tier subsidiary, The National Acme Company (National Acme). This sale will result in an estimated net gain of $17,000,000, or $2.50 per common share; year-end shareholders' equity of $84,901,000 increasing, after recording the gain and related adjustments, to approximately $105,000,000; and cash increasing to over $50,000,000. Under the terms of the stock purchase agreement, the Purchaser paid $9,600,000 in cash and assumed all liabilities related to the business. The purchase agreement provides for the Company to make contingent payments up to $3,000,000, less a $300,000 deductible, for costs associated with a breach of any representation or warranty contained in the agreement. The contingency period ranges between 18 and 24 months subsequent to the sale date. The Company does not anticipate any material charges related to this contingency. National Acme manufactures and sells multiple spindle bar and chucking machines and related parts and services. Accounting standards require that the results of a major line of business sold be condensed and shown separately as a discontinued operation in the consolidated statements of operations for all reported periods. The Company's consolidated results prior to such restatement are as follows (in thousands): 1995 1994 1993 Net sales . $164,117 $176,4 45 $174,9 28 Earnings before income taxes, minority interest, extraordinary item, and cumulative effect of accounting changes . . $14,85 8 $ 10,371 $10,04 5 Income taxes (credit). . (2,766 ) 3,755 4,815 Minority interest. . . 152 (116) -0- Earnings before extraordinary item and cumulative effect of accounting changes . . 17,776 6,500 5,230 Extraordinary item. . . . -0- - -0- 1,900 Net gain on sale of subsidiary . . . . . . . . . . . . . . . 24,727 - -0- -0- Cumulative effect of accounting changes . . -0- (29,92 1) -0- Net earnings (loss) . . $42,50 3 $(23,4 21) $ 7,130 Earnings (loss) per common share. . $ 6.30 $ (3.77) $ 1.07 Operational results of CTD (for one month in 1995) and National Acme, which are condensed and shown as discontinued operations in the accompanying consolidated statements of operations, are as follows (in thousands): CTD Results _ 1995 1994 1993 Net sales . $ 5,76 4 $68,5 77 $65,7 77 Earnings before income taxes . . $ 261 $ 4,708 $ 2,151 Income taxes . . 120 1,615 1,625 Earnings from discontinued operations $ 141 $ 3,093 $ 526 Earnings per common share . . . $ .02 $ .49 $ .08 National Acme Results 1995 1994 1993 Net sales . $37,6 37 $30,6 68 $27,6 41 Earnings (loss) before income taxes . . $ 4,713 $ 1,047 $ (223) Income taxes (credit) (includes $10,981 benefit related to change in valuation allowance in 1995) . (9,13 1) 151 (135) Earnings (loss) from discontinued operations. $13,8 44 $ 896 $ (88) Earnings (loss) per common share (includes $1.63 related to tax benefits in 1995) . . . $ 2.05 $ .14 $ (.02) Net (liabilities) of National Acme at September 30, 1995 and assets of CTD at September 30, 1994 were (in thousands): 1995 1994 Net receivables. $ 5,594 $ 7,793 Net inventories. 5,093 4,733 Other current assets . . 50 321 Net property, plant, and equipment . . . . . . . . . . . . . . 2,298 17,835 Other assets . . 169 1,174 Current deferred income taxes. . . . . . . . . . . . . . . . . 2,474 (815) Other current liabilities. . . . . . . . . . . . . . . . . . . (9,627) (11,507) Long-term debt . -0- (211) Postemployment benefits other than pensions. (24,247) (12,004) Unfunded pension costs . (6,006) (3,667) Deferred income taxes. . 11,062 (328) Net (liabilities) assets . . . . . . . . . . . . . . . . . . $(13,140) $ 3,324 At September 30, 1995, shareholders' equity includes a debit of $3,557,000 for the National Acme pension adjustment. Included in shareholders' equity at September 30, 1994 is a debit of $3,433,000 for foreign currency translation adjustments related to CTD and debits of $4,486,000 and $6,283,000 for pension adjustments related to CTD and National Acme, respectively. Note C Acquisitions On November 1, 1994, the Company acquired all of the outstanding shares of common stock of Ball Screws & Actuators Co., Inc. (BSA) for a cash price of $6,500,000. Two payments of $750,000 each become payable if certain sales goals are achieved by BSA in calendar years 1995 and 1996. BSA, located in San Jose, California, develops, manufactures, and distributes motion and positioning system components including precision ball screws and nuts, lead screws, actuators, linear guides, and associated products. On November 21, 1994, the Company acquired for cash all of the outstanding shares of common stock of TxPort, Inc. (TxPort) for $26,250,000. TxPort, located near Huntsville, Alabama, develops, manufactures, and sells digital data access products that are used to connect high speed digital data equipment. The BSA and TxPort acquisitions were recorded under the purchase method of accounting; and accordingly, the results of operations of BSA and TxPort for the periods from November 1, 1994 and November 21, 1994, respectively, are included in the accompanying consolidated financial statements. The purchase prices have been allocated to assets acquired and liabilities assumed based on fair market value at the dates of acquisition. The fair value of assets acquired and liabilities assumed, after giving effect to the write-off of certain purchased research and development, is summarized as follows (in thousands): BSA TxPort Current assets. . . . . . $1,661 $ 7,511 Property, plant, and equipment 595 517 Intangibles . . . . . . . 850 3,360 Goodwill. . . . . . . . . 5,475 13,823 Current liabilities . . . . . . . (2,018) (2,594) Long-term liabilities . . . . . . . (63) (1,200) $6,500 $21,417 Also on November 21, 1994, the Company acquired for cash the product lines, assets, and related rights of Phoenix Microsystems, Inc. (Phoenix) located in Huntsville, Alabama, for $3,000,000. Phoenix manufactures and sells test instrumentation for the digital telecommunication and data market, primarily for the telephone operating companies. In connection with the Company's acquisition of TxPort and Phoenix, certain research and development projects acquired were determined to have no alternative future use. Accordingly, $5,693,000 of purchased research and development was expensed in the first quarter of 1995 as a nonrecurring cost. BSA is included within the Precision Products segment; TxPort and Phoenix are included within the Telecommunication and Electronic Products segment. The following unaudited pro forma financial information for the Company gives effect to the BSA and TxPort acquisitions as if they had occurred on October 1, 1993. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on the date indicated, or which may result in the future. The 1995 pro forma information excludes the write-off of certain purchased research and development of $5,383,000, or $.80 per common share, and includes an additional $181,000, or $.02 per common share, for TxPort (for two months), and $58,000, or $.01 per common share, for BSA (for one month). The 1994 pro forma information includes the write- off of certain purchased research and development of $5,383,000, or $.85 per common share, and full year earnings of $1,087,000, or $.17 per common share, for TxPort, and $599,000, or $.10 per common share, for BSA. The 1995 and 1994 pro forma information includes sales of $3,358,000 and $16,441,000, respectively, for TxPort and $715,000 and $7,282,000, respectively, for BSA. The pro forma results follow (in thousands, except per share data): Year Ended September 30, 1995 1994 Net sales . . . . . . . . $124, 789 $100,9 23 Earnings from continuing operations b e f o r e c u m u l a t i v e e f f e c t o f a c c o u n t i n g c h a n g e s $ 9 , 4 1 3 $ (1,186 ) Net earnings (loss) . . . $ 48,12 5 $(27,1 18) Per share data: Earnings from continuing operations b e f o r e c u m u l a t i v e e f f e c t o f a c c o u n t i n g c h a n g e s $ 1.39 $ (.23) Earnings (loss) per share . . . . . . . . . . $ 7.13 $ (4.35) Note D Income Taxes As discussed in Note A, the Company adopted SFAS No. 109, "Accounting for Income Taxes," as of October 1, 1993. The cumulative effect from the adoption of this standard increased 1994 earnings from continuing operations by $5,631,000, or $.89 per common share, and earnings from discontinued operations by $3,369,000, or $.54 per common share. On October 1, 1993, a valuation allowance of $20,400,000 was recorded due to the uncertainty of realizing temporary differences, principally related to deferred compensation and employee benefits, foreign and certain state and local net operating loss carryforwards, capital loss carryforwards, and foreign tax credit carryforwards. The components of earnings from continuing operations before income taxes and minority interest are (in thousands): 1995 1994 1993 Domestic $9,106 $4,240 $8,908 Foreign 778 376 (791) $9,884 $4,616 $8,117 Income taxes from continuing operations before extraordinary item included in the statements of consolidated operations are as follows (in thousands): Deferred Liability Method Method 1995 1994 1993 Federal: C u r r e n t $7,222 $1,600 $1,233 D e f e r r e d (2,061) 67 -0- 5,161 1,667 1,233 Foreign: C u r r e n t 167 204 (40) D e f e r r e d 88 (54) 12 255 150 (28) State and local: Current . . . 881 300 220 Deferred. . . (52) (128) -0- 829 172 220 Charge in lieu of i n c o m e t a x e s - 0- -0- 1,900 $6,245 $ 1,989 $3,325 The 1993 provision for income taxes included charges in lieu of federal and state and local taxes representing taxes which have been provided in the absence of net operating loss and tax credit carryforwards from prior years. Income tax benefits resulting from the utilization of carryforwards for financial reporting purposes in 1993 are presented as an extraordinary item. For continuing operations, at September 30, 1995, the Company had available for federal income tax purposes foreign tax credit carryforwards of $215,000 which expire in 1998 through 2000 and $2,250,000 of net operating loss carryforwards available at certain foreign subsidiaries of which $306,000 expires in 2000 and $1,944,000 has no expiration date. A reconciliation of the statutory federal income tax rate for continuing operations and the effective rate follows: Deferred Liability Method Method 1995 1994 1993 Statutory federal income t a x r a t e 34.0% 34.0% 34.0% Effect of: F o r e i g n i n c o m e t a x e s 2.3 .5 3.0 S t a t e i n c o m e t a x e s 5.9 2.6 2.2 G o o d w i l l 1.8 1.7 (.4) Purchased R&D . . 16.6 -0- -0- Tax exempt interest. . . . . (2.2) (.4) -0- Minority equity investments . . . 1.7 .1 .8 Change in valuation allowance . . . . (2.4) -0- - 0 - Other items . . . 5.5 _ 4.6_ 1.4_ 63.2% 43.1% 41.0% For 1993 the provision for deferred income taxes was based on the tax effects of the differences in the timing of income and expense recognition between financial reporting purposes and tax reporting purposes. The components of deferred income tax expense from continuing operations are summarized as follows (in thousands): Accelerated depreciation for . . . . . . . . . . . t a x p u r p o s e s $(16) Inventory, employee benefits, . . . . . . . a n d o t h e r r e s e r v e s d e d u c t e d . . . . . . . f o r t a x r e t u r n s i n p e r i o d s . . . . . . . d i f f e r e n t t h a n f o r financial . . . . . . . reporting purposes . . . . . . . . . . 31 Elimination of deferred items . . . . . . . d u e t o l o s s c a r y f o r w a r d s (3) $12 Components of the Company's deferred tax assets and liabilities for continuing operations as of September 30, 1995 and 1994 are as follows (in thousands): 1995 1994 Deferred tax assets: Postretirement health care benefits. . . . . . . . . . . . . $ 1,283 $ 906 Pensions . . 927 973 Inventory. . 1,095 974 Compensation and other related accounts. . . . . . . . . . . 2,065 1,508 Tax credits and foreign losses . . . . . . . . . . . . not currently utilizable 1,265 2,904 State and local temporary differences . . . . . . . . . and loss carryforwards, net of . . . . . . . . . . . . . . . . . .federal taxes 633 582 Other. . . . 3,347 1,761 . .Subtotal 10,615 9,608 Deferred tax liabilities: . . . . . . . . . . . Tax over book depreciation (1,892) (836) Foreign currency translation (952) (876) . . . Other (124) (124) . .Subtotal (2,968) (1,836) Valuation allowance. . (1,284) (2,923) Net deferred tax asset $ 6,363 $4,849 During 1995, the valuation allowance decreased by $14,149,000, of which $1,639,000 relates to continuing operations. The reduction in the valuation allowance resulted in an increase in net earnings from continuing operations of $235,000, or $.03 per common share, and $10,981,000, or $1.63 per common share, for discontinued operations. The remainder of the decrease in the valuation allowance did not impact net earnings and was principally related to expiring foreign tax credit carryforwards. Note E Credit Agreements and Borrowings Short-Term Borrowings The Company maintained agreements with several foreign banks providing lines of credit in the amounts of $852,000 and $1,201,000 in 1995 and 1994, respectively. These agreements are renewable annually or upon periodic review by the lending institutions. Long-Term Borrowings At September 30, 1995, the Company had a credit agreement with certain banking institutions which permitted borrowings up to $12,000,000 through November, 1997. Of such amount, $2,000,000 was for standby and commercial letters of credit and $1,000,000 was for foreign exchange transactions. The revolving credit notes permit borrowings at the base lending rate of the agent bank, or, alternatively at the Company's option, at 1.75% above an adjusted London Interbank Offered Rate (LIBOR). Such adjustment is defined in the agreement as the published LIBOR rate increased by the reserve percentage prescribed by the Board of Governors of the Federal Reserve System, or any successor. The credit agreement is secured by a first security interest in all domestic accounts receivable, inventory, and equipment. The agreement requires, among other terms, minimum amounts, as defined, of working capital and net worth, and minimum ratios of current assets to current liabilities and total indebtedness to net worth. There were no cash borrowings against the credit agreement at September 30, 1995 or 1994. At September 30, 1995 standby letters of credit of $288,000 were outstanding related to international shipments. Long-term debt at September 30 consisted of the following (in thousands): 1995 1994 7.125% Industrial Revenue . . Bonds, annual installments . . . . . . . . . through 1996 $ - 0- $ 365 7.4% to 8.25% notes and mortgages, annual installments . . . . . . . . . through 1999 _687 854 $ 687 $1,219 Annual debt installments are $306,000 in 1996, $301,000 in 1997, $254,000 in 1998, and $132,000 in 1999. Note F Pension and Profit Sharing The Company has non-contributory defined benefit plans covering certain United States employees. Plans for salaried employees typically provide pay-related benefits based on years of service. Plans for hourly and certain salaried employees provide benefits based on flat-dollar amounts and years of service. The Company's current policy is to fund these plans in an amount that falls between the minimum contribution required by ERISA and the maximum tax deductible contribution. Plan assets include equity, fixed income, and money market funds, and individually managed fixed income securities. A summary of the components of net periodic pension cost are as follows (in thousands): 1995 1994 1993 Service cost- benefits earned during the period. . . . . . . . $ 846 $1,588 $1,420 Interest cost on projected benefit obligation. . . . . . . . 3,334 5,191 5,199 Actual return on plan assets. . . . . . . . . (4,89 2) (743) (5,993 ) Net amortization and deferral. . . . . . . . 2,491 (4,010 ) 1,168 Net pension cost of defined benefit plans . . . . . . . . . . $1,77 9 $2,026 $1,794 Related to continuing. . . . . . . . $ 511 $ 468 $ 356 Related to discontinued. . . . . . . $1,26 8 $1,558 $1,438 The following table sets forth the funded status and amounts recognized in the Company's balance sheet for its defined benefit plans at September 30 (in thousands): 1995 1994 Actuarial present value of: Ve st ed ac cu mu la te d be ne fi t obligation . . . . . $39,29 4 $63,90 6 No nv es te d ac cu mu la te d benefit obligation . $ 1,069 $ 3,184 Pr oj ec te d be ne fi t ob li ga ti on $41,45 0 $69,15 2 Fair value of plan assets. . . . . . . . . . 32,702 54,175 Excess of projected benefit ob li ga ti on ov er fa ir va lu e of pl an as se ts 8,748 14,977 Unrecognized net asset at tr an si ti on to SF AS No . 87 , ne t of am or ti za ti on 175 987 Unrecognized net loss . . (6,348 ) (13,78 3) Unrecognized prior service co st (168) (481) Additional minimum liability . . . . . . . . 5,825 11,952 Accrued pension cost. . . $ 8,232 $13,65 2 Related to continuing . . $ 1,169 $ 1,241 Related to discontinued. . . . . . . $ 7,063 $12,41 1 The assumptions used to determine the projected benefit obligation for all periods presented follow: Discount rate . . . . . . 7.75% Rate of increase in future comp ensa tion leve ls 4.50% Long-term rate of return on plan asse ts 9.00% The Company's minimum additional pension liability of $5,825,000 and $11,952,000 consists of intangible assets of $164,000 and $513,000 and reductions of shareholders' equity of $3,736,000 (net of tax) and $11,439,000 at September 30, 1995 and 1994, respectively. Included in unfunded pension costs is the additional minimum pension liability of $272,000 and $6,650,000 at September 30, 1995 and 1994, respectively; the remainder is in net liabilities and assets of discontinued operations. Included in other assets is the intangible asset of $1,000 and $225,000 at September 30, 1995 and 1994, respectively; the remainder is in net liabilities and assets of discontinued operations. The Company has defined contribution retirement plans that cover its eligible employees. The purpose of these defined contribution plans is generally to provide additional financial security during retirement by providing employees with an incentive to make regular savings. The Company matches up to 6% of an employee's covered compensation in accordance with the formulas set forth in the plans. Matching contributions to the plans of continuing operations were $419,000, $272,000, and $234,000 in 1995, 1994, and 1993, respectively. Matching contributions to the plans of discontinued operations were $131,000, $433,000, and $398,000 in 1995, 1994, and 1993, respectively. Note G Nonpension Postretirement and Postemployment Benefits In addition to providing pension benefits, the Company provides health care insurance benefits for certain active eligible and retired employees. Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Under SFAS No. 106, the Company is required to accrue the estimated cost of retiree benefit payments other than pensions during employees' active service periods. The Company previously expensed the cost of these benefits as claims were paid. Costs charged to continuing operations were $273,000 and to discontinued operations were $3,595,000 in 1993. The Company elected to recognize this change in accounting on the immediate recognition basis. The cumulative effect of adopting SFAS No. 106 was an increase in accrued postemployment benefits and a decrease in 1994 earnings from continuing operations of $2,050,000, or $.32 per common share, and from discontinued operations of $36,364,000, or $5.78 per common share. In addition to the cumulative effect, the Company's 1995 and 1994 postretirement health care costs were accounted for under the new method and consisted of the following components (in thousands): 1995 _ 1994_ Service cost. . . . . . . . . . . . $ 40 $ 111 Interest cost . . . . . . . . . . . 1,663 3,296 Net amortization and deferral. . . . . . . . . . . . . . (809) -0- Net periodic postretirement benefit costs . $ 894 $3,407 Related to continuing . . . . . . . $ 217 $ 287 Related to discontinued . . . . . . $ 677 $3,120 The net amortization and deferral is related to a change in actuarial assumptions and is amortized over the remaining lives of retirees using the corridor approach. The Company continues to fund these benefit costs on a pay-as-you-go basis, with the retiree in most instances paying a portion of the costs. Summary information for the Company's plans is as follows at September 30, 1995 and 1994 (in thousands): 1995 _ 1994_ Accumulated Postretirement Benefit Obligation (APBO): . . . . . . . . . Retirees . . . $ 20,121 $39,717 Active participants eligible to . . . . . . . . . receive benefits. . . . . . . . . 399 741 . . . . .Other active plan participants. . . . . . . 1,351 3,082 .APBO . . . 21,871 43,540 . . . . . . . .Unamortized gain. 7,944 1,129 . . . . . . . Accrued cost . . . $29,815 $44,669 Related to continuing. . $ 3,485 $ 3,611 Related to discontinued . . . $26,330 $41,058 The discount rate used in determining the APBO was 7.75% in 1995 and 1994. The assumed health care cost trend rate used in measuring the APBO was an average of 11.5% in 1995, declining to an ultimate rate of 6% in 2004 and thereafter. A 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at September 30, 1995 by approximately 4%, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by approximately 4%. Effective October 1, 1993 the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement establishes financial accounting and reporting for the cost of benefits provided to former or inactive employees after employment but before retirement. Prior to 1994, the cost of such benefits was recorded at the time paid. The adoption resulted in a cumulative effect charge of $192,000 to earnings of continuing operations, or $.03 per common share, and $315,000 to earnings of discontinued operations, or $.05 per common share. At September 30, 1995 and 1994, accruals for continuing operations of $347,000 and $311,000, respectively, were included in postemployment benefits other than pensions. At September 30, 1995 and 1994, accruals for discontinued operations of $71,000 and $196,000, respectively were included in current (liabilities) assets of discontinued operations. Note H Company Stock Plans With the adoption in 1994 of the Acme- Cleveland Corporation Performance and Equity Incentive Plan (the 1994 Plan) there will be no additional grants of stock options or stock appreciation rights under the Amended 1985 Employees Stock Option and Stock Appreciation Rights Plan. The 1994 Plan provides for the granting of director options, stock options, stock appreciation rights, stock awards, or cash awards. The number of common shares available for grant of awards is 1% of the number of common shares outstanding as of the first day of each fiscal year, plus up to an additional .5%, consisting of shares available, but not granted, in prior years. At September 30, 1995, there were 21,860 shares available for grant under the 1994 Plan. Stock Options The Company may grant non- qualified stock options to directors and non-qualified or incentive stock options to certain key employees of the Company. The aggregate number of common shares that may be issued upon exercise of incentive stock options is 360,000. Director options granted during 1995 totaled 8,000 shares. No other options were granted during 1995. Summarized transactions are as follows (in thousands, except per share data): Number of Options Exercise Price Range Per Share Outstanding at . . . Oct. 1, 1993 436 $5.00 to $17.25 Granted . . . . 8 $10.3125 Exercised . . . (9) $5.00 to $10.625 Canceled or expired . . . . (8) $12.875 Outstanding at S e p t . 3 0 , 1 9 9 4 427 $5.00 to $17.25 Granted . . . . 8 $15.25 Exercised . . . (105) $5.00 to $14.125 Canceled or expired . . . . (14) $5.00 to $17.25 Outstanding at Sept. 30, 1995. . . . . . 316 $5.00 to $15.25 Exercisable at Sept. 30, 1995. . . . . . 298 Stock Awards The Company may grant stock awards to certain key employees. Such awards may be made in common shares, restricted stock, or stock equivalent units, and may be subject to certain conditions, restrictions, and risks of forfeiture, as established by the Board of Directors. Such performance stock awards will vest 3 years from the date of grant and will be considered earned upon the achievement of predetermined financial objectives at the end of the designated three-year period. The value of these awards is charged to expense over the designated performance period. In 1995, 49,500 performance stock awards were granted relating to the three-year performance period ending September 30, 1997. Of the 42,500 performance stock awards issued in 1994, 4,000 were canceled in 1995, leaving 38,500 to cover the performance period ending September 30, 1996. Note I Capital Stock Preferred Shares The Series A Preferred Shares have voting rights on a share-for- share basis with the common shares, and the right to convert the shares on a share-for-share basis into common shares at any time. Liquidation preference is $26 per share. The Company has the right to redeem the shares at a price of $26 per share. Reserved Shares 631,208 common shares are reserved for issuance under the Company stock plans and for conversion of the Series A Preferred Shares. Note J Leases The Company leases certain land, buildings, and equipment which are used in manufacturing and warehousing operations. Net liabilities of discontinued operations in 1995 and property, plant, and equipment in 1994 included the following amounts for capital leases at September 30 (in thousands): 1995 1994 Land. . . . . . . . . . . $ 98 $ 98 Buildings . . . . . . . . 1,505 1,505 Machinery and equipment . . . . . . . . 2,564 2,805 4,167 4,408 Less allowances for depreciation and amortization. . . . . . . 3,608 3,725 $ 559 $ 683 Future minimum lease payments for continuing operations non-cancelable operating leases with initial or remaining terms of one year or more consisted of the following at September 30, 1995 (in thousands): 1996. . . . . . . . . . . $1,288 1997. . . . . . . . . . . 669 1998. . . . . . . . . . . 425 1999. . . . . . . . . . . 263 2000. . . . . . . . . . . 182 Thereafter. . . . . . . . 9 T o t a l m i n i m u m l e a s e p a y m e n t s $2,836 Lease amortization is included in depreciation expense. Rental expense for operating leases charged to continuing operations was $1,793,000, $1,265,000, and $974,000, in 1995, 1994, and 1993, respectively. Rental expense for operating leases charged to discontinued operations was $116,000, $383,000, and $478,000, in 1995, 1994, and 1993, respectively. Note K Business and Geographic Segment Information The Company has two business segments under continuing operations: Telecommunication and Electronic Products and Precision Products. The businesses in the Telecommunication and Electronic Products segment produce and sell products used by telephone operating companies, interexchange carriers, Fortune 500 type firms that operate private communication networks, and end-user customers in the automotive, material handling systems, power generation, and other industries. Telecommunication products include automated data transmission analyzers, single and multi-function test equipment, computerized cable test and data base management systems, digital data access devices, and molded cable closures and terminals. Electronic products include electronic and photoelectric sensors, encoders, intelligent laser scanners, and electromechanical limit switches. The businesses in the Precision Products segment produce and sell products used in a broad spectrum of industries including aerospace, air compression, automotive, off road vehicles, power transmission components, electronics, and medical industries. Such products include quality assurance products and systems, motion and positioning components and systems, precision gauges, metal and punch form tooling, and specialty gears. Identifiable assets are those assets used exclusively in the operation of each business segment or geographic area. Corporate assets consist primarily of cash and other investments. Financial information by business segment and geographic area follows (in thousands): Notes to Consolidated Financial Statements Acme-Cleveland Corporation and Subsidiaries BusinessYear Ended September 30 1995 1994 1993_ Net sales Telecommunication and electronic products $ 82,940 $ 56,055 $ 58,533. Precision products 37,776 21,145 22,977 $120,716 $ 77,200 $ 81,510 Earnings (loss) from continuing operations Telecommunication and electronic products $ 11,752 $ 4,787 $ 8,348 . Precision products 5,440 2,717 2,596 Corporate (3,269) (3,710) (2,809) 13,923 3,794 8,135 Net interest 1,599 820 479 Net other 55 2 (497) Purchased R&D writeoff (5,693) -0- -0- Earnings from continuing operations before income taxes, minority interest, extraordinary item, and cumulative effect of accounting changes $ 9,884$ 4,616 $ 8,117 . Identifiable assets Telecommunication and electronic products $ 66,374 $ 30,352 $ 23,160. Precision products 26,48014,771 15,205 Corporate 47,399 32,864 33,278 Discontinued operations - 0- (1) 27,660 (2) 52,246 $140,253 $105,647 $123,889 Depreciation Telecommunication and electronic products $ 1,901$ 1,807 $ 1,162 . Precision products 949 788 998 Corporate. . 31 30 52 Discontinued operations 560 3,187 4,027 $ 3,441 $ 5,812 $ 6,239 Capital additions Telecommunication and electronic products $ 3,866 $ 1,716 $ 1,128 . Precision products 1,144 430 356 Corporate 40 6 30 Discontinued operations 297 2,431 4,187 $ 5,347 $ 4,583 $ 5,701 Notes: (1)Net liabilities of discontinued operations are net of assets of $26,740 at September 30, 1995. (2)Amounts are net of liabilities of $28,532 at September 30, 1994. GeographicYear Ended September 30 1995 1994 1993_ Net sales United States Sales to unaffiliated customers. . $106,263 $ 63,705 $ 69,719 Interarea sales 2,093 1,967 1,267 108,356 65,672 70,986 International Sales to unaffiliated customers. . 14,453 13,495 11,791 Interarea sales 2,512 1,816 2,293. 16,965 15,311 14,084 Eliminations Interarea sales (4,605) (3,783) (3,560) . . . . . . . . . . . . . . . $120,716 $ 77,200 $ 81,510 Earnings from continuing operations before income taxes, minority interest, extraordinary item, and cumulative effect of accounting changes United States $ 9,106 $ 4,240 $ 8,908 International 778 376 (791) $ 9,884 $ 4,616 $ 8,117 Identifiable assets United States $130,522 $ 89,996 $106,337 International 9,731 15,651 17,552 $140,253 $105,647 $123,889 Quarterly Data Acme-Cleveland Corporation and Subsidiaries For Fiscal Years 1995 and 1994 In thousands, except per share data (Unaudited) 1995 December 31 March 31 June 30September 30 Total Year Net sales . . . .$24,691 . . . . . $32,113$31,458 $32,454 .$120,716 Gross profit. . . 9,700 . . . . . .13,51812,881 13,265. . .49,364 Earnings from continuing operations . (3,595)(2) 2,268 . . . . . . 2,489 2,629 3,791 Discontinued operations: Earnings from operations, net of taxes 11,281 (3) 387 . . . . . . . 6081,709 13,985 Gain on sale (less income taxes of $1,500) 24,727 . . . . . . -0- -0- -0- . . .24,727 Net earnings. . . 32,413 2,655 . . . . . . 3,097 4,338 42,503 Net earnings per common share(1): Continuing operations . .(.54) (2) .34 . . . . . . . .37 .39.56 (2) Discontinued operations: Earnings from operations, net of taxes 1.70 (3) . . . . . . . .06 .09 .25 2.07(3) Gain on sale 3.75 - 0- -0- -0- 3.67 4.91 .40 .46 .64 6.30 Share prices (NYSE): High 14 16 7/8 28 28 3/4 Low 9 7/8 10 1/4 16 1/223 1/4 Dividends per common share. . . . .11 . . . . . . . .12 .12 .12 1994 December 31 March 31 June 30 September 30 Total Year Net sales . . . .$18,834 . . . . . $17,893$20,888 $19,585 . $77,200 Gross profit. . . 6,952 . . . . . . 5,576 7,354 7,397 . . .27,279 Earnings from continuing operations before cumulative effect of accounting changes 1,008 . . . . . . . .54 1,540 . . . . . . .(91) 2,511 Discontinued operations before cumulative effect of accounting changes . . . . . 148 785 . . . . . . . 882 2,174 . . . 3,989 Cumulative effect of accounting changes (29,921) - 0-. . . . . . . . -0- -0- (29,921) Net (loss) earnings . . (28,765) 839 . . . . . . 2,422 2,083 (23,421) Net (loss) earnings per common share(1): Continuing operations before cumulative effect of accounting changes .15 -0- .23 (.02) .35 Discontinued operations before cumulative effect of accounting changes .02 .12 .13 .33 .63 Cumulative effect of accounting changes (4.75) -0- -0- -0- (4.75) (4.58) .12 .36 .31 (3.77) Share prices (NYSE): High 10 3/4 10 5/8 15 1/214 3/8 Low 9 1/8 9 9 1/4 10 1/2 Dividends per common share. . . . .11 . . . . . . . .11 .11 .11 (1)Due to the use of the weighted shares outstanding method of calculating earnings per share, the sum of the quarterly results pe r share amounts does not equal the results per share for the year. (2)The first quarter of 1995 included a charge of $5,383, or $.81 per common share, for the write-off of certain purchased research and development; for the full year this computes to $.80 pe r common share. (3)The first quarter of 1995 included a credit to income tax expense of $10,981, or $1.66 per common share, for a decrease in the deferred tax valuation allowance; for the full year this computes to $1.63 per common share. Five-Year Summary Acme-Cleveland Corporation and Subsidiaries In thousands, except per share data and statistical information 1995 1994 1993 1992 1991 Results of operations Net sales $120,716 $77,200 $81,510 $85,240 $80,291 Gross profit 49,364 27,27928,818 28,142 23,307 % of net sales 41% 35% 35% 33% 29% Earnings from operations 13,923 3,794 8,135 6,983 1,364 % of net sales 12% 5% 10% 8% 2% Earnings from continuing operations before extraordinary item and cumulative effect of accounting changes 3,791 2,511 4,792 4,568 1,390 % of net sales 3% 3% 6% 5% 2% Per common share .56 .35 .71 .68 .17 Discontinued operations before extraordinary item and cumulative effect of accounting changes 38,712 3,989 438 (949) (4,353) Per common share 5.74 .63 .06 (.15) (.69) Extraordinary item -0- -0- 1,900 1,700 -0- Per common share . . . . -0- -0- .30 . . ..26 -0- Cumulative effect of accounting changes -0- (29,921) -0- -0- - 0- Per common share - 0- (4.75) -0- -0- - 0- Net earnings (loss) 42,503 (23,421) 7,130 5,319 (2,963) Per common share . . . . 6.30 (3.77) 1.07. ..79 (.52) Financial position Cash and securities . . . .44,658 38,563 37,808 29,645.19,488 Total assets 140,253 . . .105,647 123,889 122,248 123,327 . . . Working capital 49,713.49,597 41,000 37,921 34,747. . . . Current ratio 2.1x 2.6x 2.0x 2.0x 1.8x Total long-term debt . . . . . 687 1,219 2,286 3,396 . 4,683 Total debt 1,056 1,926 3,423 4,536 8,146 Debt to capital ratio 1.2% 5.4% 5.0% 6.6% 11.4 % Shareholders' equity . . . .84,901 33,713 64,823 64,544.63,411 Shareholders' equity per common share . . . . 12.69 4.77 9.73. . .9.68 9.50 Return on shareholders' equity 126.1% (36.1)% 11.1% 8.4% (4.4)% Other information - continuing operations Customer orders booked 124,053 77,947 78,637 90,178 79,449 Customer order backlog 13,469 8,740 8,497 12,035 7,928 Capital additions 5,050 2,152 1,514 2,552 1,574 Depreciation 2,881 2,625 2,212 2,188 2,193 Dividends paid(1) 3,257 3,060 2,870 2,807 2,807 Cash dividend paid per common share .47 .44 .41 .40 .40 Common shares outstanding at year-end 6,405 6,300 6,291 6,291 6,291 Shares used in computing per share amounts 6,747 6,295 6,373 6,334 6,312 Redeemable preferred shares 161 161 161 161 161 Number of shareholders at year- end 2,094 2,320 2,187 1,940 2,059 Number of employees at year-end 928 776 738 768 804 (1) Includes dividend requirement for Series A Preferred Shares issued June 1, 1980 of $290 in each of the years presented. Report of Ernst & Young LLP, Independent Auditors To the Board of Directors and Shareholders Acme-Cleveland Corporation We have audited the accompanying consolidated balance sheets of Acme-Cleveland Corporation and Subsidiaries as of September 30, 1995 and 1994, and the related statements of consolidated operations, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acme-Cleveland Corporation and Subsidiaries at September 30, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Cleveland, Ohio October 30, 1995 FORM 10-Q PART I - FINANCIAL INFORMATION ACME-CLEVELAND CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (In thousands, except per share data) Six Months Ended Three Months Ended March 31 March 31 1996 1995 1996 1995 Net sales $65,744 $56,804 $35,169 $32,113 Cost of products sold 38,859 33,586 20,740 18,595 Gross profit 26,885 23,218 14,429 13,518 Selling, general, and administ 17,295 14,441 8,398 8,439 Research and development expen 2,421 1,777 1,320 1,052 Amortization of goodwill and i 826 521 469 344 Operating profit 6,343 6,479 4,242 3,683 Other income (expense): Interest income 950 1,033 389 545 Interest expense (65) (87) (26) (37) Other income 512 421 442 188 Other expense (345) (670) (28) (401) Purchased research and devel -0- (5,693) -0- -0- Unsolicited tender offer exp (1,250) -0- (1,250) -0- (198) (4,996) (473) 295 Earnings from continuing operations before income taxes 6,145 1,483 3,769 3,978 Income taxes 2,385 2,810 1,450 1,710 Earnings (loss) from cont 3,760 (1,327) 2,319 2,268 Discontinued operations: Earnings from operations, net of tax benefit of $10,981 for the six months ended March 31, 1995 -0- 11,668 -0- 387 Gain on sale (less income taxes of $13,140 and $1,500 for the six months ended March 31, 1996 and 1995, 17,025 24,727 -0- -0- 17,025 36,395 -0- 387 Net earnings $20,785 $35,068 $2,319 $2,655 Earnings (loss) per common share: Continuing operations $0.55 ($0.20) $0.34 $0.34 Discontinued operations: Earnings from operations, -0- 1.75 -0- 0.06 Gain on sale 2.49 3.71 -0- -0- 2.49 5.46 -0- 0.06 Net earnings per common s $3.04 $5.26 $0.34 $0.40 Number of shares used in computation of net earnings per common share 6,827 6,666 6,663 6,508 Dividends per share $0.25 $0.23 $0.13 $0.12 ACME-CLEVELAND CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31 September 30 1996 1995 Assets Current assets Cash and cash equivalents, inclu $25,877 $44,658 Trade receivables, less allowances of $753 and $602, respectively 23,802 18,633 Inventories: Finished goods 8,276 5,231 Work in process 9,734 8,430 Raw materials 15,550 11,855 Total inventories 33,560 25,516 Other current assets 1,044 814 Deferred income taxes 6,600 6,377 Total current assets 90,883 95,998 Property, plant, and equipment - at c 47,543 44,039 Less accumulated depreciation 29,388 28,044 Net property, plant, and equ 18,155 15,995 Goodwill and intangibles 35,376 24,456 Other assets 4,078 3,534 Deferred income taxes 250 270 Total assets $148,742 $140,253 March 31 September 30 1996 1995 Liabilities and Shareholders' Equity Current liabilities Payable to banks $1,545 $1,620 Current portion of long-term deb 296 306 Accounts payable 7,550 5,995 Other accrued expenses 11,512 10,760 Accrued compensation 7,509 9,994 Income taxes payable 3,397 4,470 Net liabilities of discontinued -0- 13,140 Total current liabilities 31,809 46,285 Long-term debt 524 687 Postemployment benefits other than pe 3,374 3,431 Unfunded pension costs 3,770 3,857 Other long-term liabilities 1,437 1,092 Shareholders' equity Serial Preferred Shares, without par value: Authorized - 936,285 shares; issued and outstanding Series A, $1.80 cumulative, convertible 161,374 shares, liquidation preference $26 per sha 3,631 3,631 Common Shares, par value $1 per share: Authorized - 10,000,000 shares; issued and outstanding, excluding 115,056 treasury shares 6,425 6,405 Other capital 55,543 55,148 Pension adjustment (179) (3,736) Foreign currency translation adj 1,764 1,848 Retained earnings 40,644 21,605 Total shareholders' equity 107,828 84,901 Total liabilities and shareholder $148,742 $140,253 ACME-CLEVELAND CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (In thousands) Six Months Ended March 31 1996 1995 Operating activities Earnings (loss) from operations: Continuing $3,760 ($1,327) Discontinued 17,025 36,395 Adjustments to reconcile earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,550 1,963 Gain on sale of property, plant, and equip (7) (6) Purchased research and development write-o -0- 5,693 Undistributed earnings of minority equity -0- 12 Deferred income tax 87 (10,774) Gain on sale of subsidiaries (17,025) (24,727) Cash (used) provided by discontinued opera (100) 416 Changes in current assets and liabilities excluding the effects of acquisitions and divestitures: (Increase) decrease in trade receivables (3,188) (2,481) (Increase) decrease in inventories (6,234) (2,759) (Increase) decrease in other current asset (213) (86) Increase (decrease) in payable to banks (51) 190 Increase (decrease) in accounts payable 1,610 1,338 Increase (decrease) in other accrued liabi (735) 437 Increase (decrease) in accrued compensatio (2,487) 580 Increase (decrease) in income taxes payabl (1,314) (385) Increase (decrease) in postemployment benefits other than pensions (97) 2 Increase (decrease) in unfunded pension co 342 79 Other, net (888) (387) Net cash (used) provided by oper (6,965) 4,173 Six Months Ended March 31 1996 1995 Investing activities Capital expenditures ($1,436) ($2,947) Proceeds from sale of property, plant, and 8 9 Purchase of marketable securities, net -0- (46) Net proceeds from sale of subsidiaries 7,981 41,718 Acquisitions - net of cash acquired (15,719) (35,816) Cash used for discontinued operations -0- (124) Net cash (used) provided by inve (9,166) 2,794 Financing activities Principal payments on long-term debt and no (1,378) (1,434) Principal borrowings on long-term debt and -0- 28 Exercise of stock options 260 102 Issuance of common stock 155 -0- Dividends paid (1,746) (1,596) Cash used for discontinued operations -0- (518) Net cash used by financing activ (2,709) (3,418) Effect of exchange rate changes on cash 59 (272) (Decrease) increase in cash and (18,781) 3,277 Cash and cash equivalents at beginning of peri 44,658 38,355 Cash and cash equivalents at end $25,877 $41,632 Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and consistent with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes that would be required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. Certain 1995 amounts were reclassified to conform to the 1996 presentation. Operating results for the quarter and six months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended September 30, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 30, 1995. Note B - Restricted Cash Cash and cash equivalents at March 31, 1996 includes $11.4 million held in a revocable benefits protection trust; in the event of a change of control, the trust becomes irrevocable. Trust assets fund certain supplemental pension benefits to certain employees and provide benefits pursuant to certain other deferred compensation and executive compensation arrangements. Note C - Goodwill and Intangibles Goodwill is the excess of the purchase price over the fair market value of net assets acquired in business combinations treated as purchases. Goodwill is amortized on a straight-line basis over the periods benefited, principally 10 to 40 years. Other acquired intangible assets, to which acquisition cost has been allocated based on fair market value, include research and development, customer lists, trade names, assembled workforce, drawings and manuals, and patents. These intangibles are amortized on a straight-line basis over the periods benefited, generally 5 to 20 years. The carrying value of goodwill and intangibles is assessed for impairment on an ongoing basis and adjusted when appropriate. Note D - Acquisitions On January 24, 1996, the Company acquired all of the common stock of Dolan-Jenner Industries, Inc., through the purchase of the common stock of its parent holding company, Dolan-Clarkson Acquisition Corporation (collectively, Dolan-Jenner) for a cash price of $13.0 million. In a separate transaction, on January 29, 1996, the Company purchased land and a building from a realty trust for $2.0 million. Dolan-Jenner, located in Lawrence, Massachusetts, is a manufacturer of fiber optic photoelectric sensors and controls, measuring and machine safety devices, as well as fiber optic cable and fiber optic illumination systems. On November 21, 1994, the Company acquired all of the common stock of TxPort, Inc. for a cash price of $26.25 million. TxPort develops, manufactures, and sells digital data access products that are used to connect high speed digital data equipment. Also on November 21, 1994, the Company acquired the product lines, assets, and related rights of Phoenix Microsystems, Inc., for a cash price of $3.0 million. Phoenix manufactures and sells test instrumentation for the digital telecommunication and data market, primarily for the telephone operating companies. On November 1, 1994, the Company acquired all of the common stock of Ball Screws & Actuators Co., Inc. (BSA) for a cash price of $6.5 million. Two contingent payments of $.75 million each become payable if certain sales goals are achieved by BSA in calendar years 1995 and 1996. The goal for 1995 was achieved, and the payment for that year was made during the second quarter of 1996. BSA develops, manufactures, and distributes motion and positioning system components including precision ball screws and nuts, lead screws, actuators, linear guides, and associated products. These acquisitions were recorded under the purchase method of accounting; and accordingly, the results of operations, subsequent to the respective acquisition dates, were included in the accompanying consolidated financial statements. The purchase prices have been allocated to assets acquired and liabilities assumed based on fair market value at the dates of acquisition. Dolan-Jenner, TxPort, and Phoenix are included within the telecommunication and electronic products segment; BSA is included within the precision products segment. The following unaudited pro forma financial information gives effect to the acquisitions as if they had occurred on October 1, 1994 for Dolan-Jenner and October 1, 1993 for TxPort (at which date the write-off of certain purchased research and development is given effect) and BSA. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on the date indicated, or which may result in the future (in thousands, except per share data). Six Months Ended March 31, 1996 1995 Net sales $69,573 $67,951 Earnings from continuing operations before unusual items $ 4,276 $ 4,301 Net earnings $20,501 $40,696 Per share data: Earnings from continuing operations before unusual items $ .63 $ .65 Net earnings $ 3.00 $ 6.11 Note E - Write-Off of Certain Purchased Research and Development In connection with the Company's acquisition of TxPort and Phoenix, certain research and development projects acquired were determined to have no alternative future use. Accordingly, $5.7 million was expensed in the first quarter of 1995 ($5.4 million, or $.81 per common share, on an after tax basis). Note F - Unsolicited Tender Offer Expenses During 1996, the Company recorded charges of $1.25 million ($.8 million after taxes, or $.12 per common share) for costs incurred to date associated with an unsolicited tender offer to acquire the Company. These costs include investment banking fees, legal fees, and public disclosure expenses. The Company expects to disburse this amount within 1996. While other costs are anticipated in the future, the timing and amounts are currently indeterminable. If no transaction is consummated, the maximum investment banking fee consists of a retainer, which has been incurred, plus quarterly financial advisory fees. If a transaction is consummated, the maximum amount of fees payable would be derived by a formula set forth in the contract between the Company and the investment banking firm. Components of this formula, which incorporates certain incentives, include the number of shares outstanding and the stock price at the time such fees become payable in full. Note G - Shareholder Rights Plan On March 11, 1996, the Board of Directors of the Company declared a dividend consisting of one Right for each outstanding common share of the Company. The distribution was credited March 23, 1996 to the shareholders of record on that date. Following the date on which a public announcement is given that a person or group of affiliated or associated persons (Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the common shares then outstanding (Share Acquisition Date), each Right entitles the registered holder (other than an Acquiring Person) to purchase from the Company one one-hundredth of a Series B Preferred Share at a price of $81.00, subject to adjustment, or to acquire one common share for an exercise price of $1.00 per share subject to antidilution adjustments. The Rights will expire at the close of business on March 23, 2006, unless earlier redeemed by the Company, at a price of $.05 per Right prior to the Share Acquisition Date. The description and terms of the Rights are set forth in a Rights Agreement between the Company and Society National Bank, as Rights Agent, adopted by the Company on March 11, 1996, and amended by a First Amendment to Rights Agreement, dated as of March 20, 1996, between the Company and the Rights Agent. Note H - Discontinued Operations On October 23, 1995, the Company sold all of the common shares of its wholly-owned second tier subsidiary, The National Acme Company, resulting in a gain on the sale of $17.0 million, or $2.49 per common share. The purchase agreement provides for the Company to make contingent payments up to $3.0 million, less a $.3 million deductible, for costs associated with a breach of any representation or warranty contained in the agreement. The contingency period ranges between 18 and 24 months subsequent to the sale date. The Company does not anticipate any material charges related to this contingency. On November 1, 1994, the Company sold all of the common shares of its wholly-owned subsidiary, The Cleveland Twist Drill Company, resulting in a gain on the sale of $24.7 million, or $3.75 per common share. The purchase agreement provides for the Company to make contingent payments up to 20% of the purchase price, less a $.75 million deductible, for costs associated with a breach of any representation or warranty contained in the agreement. The contingency period ranges between 15 and 24 months subsequent to the sale date. The Company does not anticipate any material charges related to this contingency. Note I - Subsequent Event - Acquisition On April 1, 1996, the Company acquired product lines, assets, and related rights of Phoenix Data Communication Corporation (Phoenix DataCom) for a cash price of $2.7 million plus a future contingency payment which is based on 1998 net sales. Phoenix DataCom products directly serve the wide area networking segment of the telecommunication industry using frame relay service. ATTACHMENT 2 Pro Forma Income Statement Year Ended December 31, 1995 (amounts in thousands) Adjust- Danaher Acme ments Combined Net revenues $1,486,769 $0 $1,486,769 Cost of sales 1,039,622 $0 (600)(f) 1,039,022 Selling, general and administrative expenses 266,890 $0 2,700 (g) 269,590 Other - $0 - Total operating expenses 1,306,512 0 1,308,612 Operating profit 180,257 0 178,157 Interest (income) expense, n 7,198 (5,249) 12,600 (h) 14,549 Earnings before income taxes 173,059 5,249 163,608 Income taxes 67,293 9,250 (7,700)(i) 68,843 Net earnings $105,766 ($4,001) $94,765 Pro Forma Income Statement Three Months Ended March 31, 1996 Unaudited (amounts in thousands) Adjust- Danaher Acme ments Combined Net revenues $409,557 $35,169 $444,726 Cost of sales 285,264 20,740 (150)(f) 305,854 Selling, general and (1,250)(J) administrative expenses 77,165 11,023 670 (g) 87,608 Total operating expenses 362,429 31,763 393,462 Operating profit 47,128 3,406 51,264 Interest (income) expense, n 2,983 (363) 3,150 (h) 5,770 Earnings before income taxes 44,145 3,769 45,494 Income taxes 17,217 1,450 (900)(i) 17,767 Net earnings $26,928 $2,319 $27,727 Pro Forma Balance Sheet As of March 31, 1996 Unaudited (amounts in thousands) Adjust- Danaher Acme ments Combined ASSETS Current Assets: Cash and cash equivalents $15,867 $25,877 $41,744 Accounts receivable, net 250,398 23,802 274,200 Total inventories 206,773 33,560 1,000 (a) 241,333 Prepaid expenses and other current assets 36,981 7,644 (5,605)(b) 39,020 Total current assets 510,019 90,883 596,297 Property, plant and equipmen 293,438 18,155 311,593 Other assets 83,594 4,328 87,922 Excess of cost over net assets of acquired companies, ne 616,429 35,376 106,777 (c) 758,582 Total assets $1,503,480 $148,742 $1,754,394 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current portion of long-term de $50,065 1,841 $51,906 Accounts payable 96,757 7,550 104,307 Accrued expenses 347,931 22,418 370,349 Total current liabili 494,753 31,809 526,562 Other liabilities 227,269 8,581 235,850 Long-term debt 101,680 524 210,000 (d) 312,204 Stockholders' equity: Common stock 634 6,425 (6,425)(e) 634 Additional paid-in capita 315,931 58,995 (58,995) 315,931 Retained earnings 409,939 40,644 (40,644)(e) 409,939 Cumulative foreign translation adjustment 2,873 1,764 (1,764)(e) 2,873 Treasury stock (49,599) - (49,599) Total stockholders' equity 679,778 107,828 679,778 Total liabilities and stockholders' equit$1,503,480 $148,742 $1,754,394 EXPLANATORY NOTES TO PRO-FORMA FINANCIAL STATEMENTS: (A)Represents an increase in inventory amounts to fair value, principally the elimination of LIFO valuation allowances. (B)Represents elimination of Acme-Cleveland common stock reflected in the Danaher balance sheet as securities available for sale. (C)Represents the excess of cost over net assets of Acme- Cleveland Corporation. (D)Represents borrowings necessary to complete the transaction subsequent to March 31, 1996. (E)Represents elimination of historical equity balances for Acme-Cleveland. (F)Represents the effects to the inventory adjustments discussed in item (A) above and the change in depreciation associated with establishing new values and useful lives for the acquired fixed assets. (G)Represents amortization of the excess of cost over net assets of Acme-Cleveland. (H)Represents interest associated with the additional borrowings discussed in item (D) above. (I)Represents an adjustment to reflect an appropriate effective tax rate. (J)Represents elimination of costs of tender offer included in Acme-Cleveland's income statement. -----END PRIVACY-ENHANCED MESSAGE-----