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Current Liabilities:
Short-term debt $ 123,871 $ 263,730
Current maturities of long-term debt 15,067 10,174
Accounts payable and accrued expenses 220,575 200,686
Income taxes ” 10,327
Dividends payable 12,633 11,893
Total Current Liabilities 372,146 496,810
Long-Term Debt 244,820 123,420
Deferred Income Taxes 82,381 74,464
Deferred Income Taxes”Leveraged Leases 127,699 112,473
Other Liabilities 14,000 ”
Minority Interest 10,941 9,295
Preferred Stock, No Par Value, Authorized 6,000,000 Shares; Issued
1,709,402 Shares, Outstanding 1,701,822 Shares, Cumulative
Series A ESOP Convertible Preferred Stock $ 124,568 $ 125,000
(continued)
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11-33 Part 2 Business Analysis and Valuation Tools




December 31,
........................................
1990 1989
(Dollars in thousands, except per share)
..................................................................................................................................................
Note Receivable from ESOP Trust (25,000) (125,000)
Unearned ESOP Compensation (95,400) ”
Common Shareholders™ Equity:
Common stock, par value $1.662 „ 3 , authorized 100,000,000 shares 49,601 49,409
Schneider and Square D




Additional paid-in capital 130,401 120,211
Retained earnings 773,126 713,225
Cumulative translation adjustments 3,262 (8,788)
Treasury stock”at cost (352,796) (317,934)
Total Common Shareholders™ Equity 603,594 556,123
Total Liabilities and Common Shareholders™ Equity $1,459,749 $1,372,585
..................................................................................................................................................



CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
......................................................
(Dollars in thousands) 1990 1989 1988
..................................................................................................................................................

Cash and Short-Term Investments at January 1 $ 66,348 $ 65,855 $ 94,488
Cash and Short-Term Investments Were Provided from (Used for):
Operating Activities:
Earnings from Continuing Operations 116,646 101,106 111,082
Add (deduct) non-cash items included in earnings from
continuing operations:
Depreciation and amortization 59,300 49,443 45,174
Deferred income taxes 1,707 (25,147) (8,506)
Deferred income taxes”leveraged leases 15,226 23,445 25,683
(Gain) loss on sale of property, plant and equipment (1,011) 1,936 657
(Gain) loss on foreign exchange (2,222) 964 (52)
Minority interest 1,646 985 1,047
Other credits to earnings”net ” (15) (63)
Current Items (net of effects of purchase of businesses):
Receivables 13,501 (58,515) (20,789)
Inventories (1,285) 26,568 (52,795)
Prepaid expenses 2,769 12,027 1,635
Accounts payable and accrued expenses (7,312) 16,736 20,316
Income taxes (15,253) (3,319) 8,243
Net cash provided from continuing operations 183,712 146,214 131,632
Net cash (used for) provided from discontinued
operations (484) 2,971 721
Net cash provided from operating activities 183,228 149,185 132,353
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Prospective Analysis: Valuation Theory and Concepts




Year Ended December 31,
......................................................
1990 1989 1988
(Dollars in thousands)
..................................................................................................................................................

Investing Activities:
Increase in investment in leveraged leases $ (3,838) $ (2,876) $ (4,829)
Purchase of businesses, net of $103 of cash acquired ” (9,271) ”




Schneider and Square D
Property additions (83,117) (80,024) (70,419)
Proceeds from sale of business 175,476 ” ”
Proceeds from sale of property, plant and equipment 21,774 6,186 14,222
Decrease (increase) in other investments 1,281 (12,794) 24,692
Net cash provided from (used for) investing activities 111,576 (98,779) (36,334)
Financing Activities:
Net (decrease) increase in short-term debt (143,983) 142,262 44,430
Increase in long-term debt 27,883 614 11,066
Reductions in long-term debt (14,412) (21,580) (17,910)
Proceeds of note receivable from ESOP trust 125,000 ” ”
Loan to ESOP trust (25,000) ” ”
Cash dividends paid on common stock (50,128) (50,590) (54,601)
Cash dividends paid on preferred stock (9,956) (5,000) ”
Common stock issued 6,602 8,929 6,349
Purchase of treasury stock (34,916) (126,778) (111,394)
Redemption of preferred stock (432) ” ”
Treasury stock issued 54 114 256
Net cash used for ¬nancing activities (119,288) (52,029) (121,804)
Effect of Exchange Rate Changes on Cash 3,069 2,116 (2,848)
Net Increase (Decrease) in Cash and Short-Term Investments 178,585 493 (28,633)
Cash and Short-Term Investments at December 31 $244,933 $ 66,348 $ 65,855
..................................................................................................................................................
See accompanying notes to consolidated financial statements.
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11-35 Part 2 Business Analysis and Valuation Tools




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share)

A. Summary of Significant Accounting Policies
Principles of Consolidation
The ¬nancial statements include the accounts of the company and all majority-owned
subsidiaries. Investments in unconsolidated af¬liates are accounted for by the equity
Schneider and Square D




method. All signi¬cant intercompany accounts and transactions have been eliminated.
The statements are based on years ended December 31, except for substantially all
international subsidiaries whose ¬scal years end November 30.

Cash and Short-Term Investments
Cash consists of cash in banks and time deposits. Short-term investments consist of a
variety of highly liquid short-term instruments with purchased maturities of generally three
months or less. Short-term investments are carried at cost, which approximates market.

Inventories
Inventories are stated at the lower of cost or market. Cost of inventories is determined
using the last-in, ¬rst-out (LIFO) method for substantially all domestic inventories and cer-
tain international inventories. The ¬rst-in, ¬rst-out (FIFO) method is used for substantially
all international inventories.

Property, Plant and Equipment
Depreciation of property, plant and equipment is provided on a straight-line basis over
the estimated useful lives of the assets. Accelerated methods are used for income tax
purposes.

Businesses Acquired
The excess of purchase price over net assets of businesses acquired is amortized on a
straight-line basis over not more than forty years.

Income Taxes
Income taxes are accounted for in accordance with APB No. 11. The Financial Accounting
Standards Board has issued Statement No. 96, which will change the accounting for
income taxes; the company will adopt this statement no later than January 1, 1992.

Off-Balance Sheet Financial Instruments
The company enters into a variety of ¬nancial instruments in the management of its expo-
sure to changes in interest rates and foreign currency rates. These instruments include
interest rate swap agreements and foreign exchange contracts. These ¬nancial instru-
ments do not represent a material off-balance sheet risk in relation to the ¬nancial
statements.

Earnings per Common Share
Primary earnings per common share are determined by dividing the weighted average
number of common shares outstanding during the year into net earnings after deducting
440 Prospective Analysis: Valuation Theory and Concepts




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Prospective Analysis: Valuation Theory and Concepts




after-tax dividends attributable to preferred shares. Common share equivalents in the
form of stock options and convertible debt are excluded from the calculation since they
do not have a material dilutive effect on per share ¬gures. Fully diluted earnings per
share re¬‚ect the conversion of all convertible preferred stock and common stock equiva-
lents into common stock.

Reclassi¬cations
Certain amounts in the 1989 and 1988 ¬nancial statements have been reclassi¬ed to
conform to the current year™s ¬nancial statement presentation.




Schneider and Square D
B. Discontinued Operations
As of June 30, 1990, the company reported its General Semiconductor Industries (GSI)
business as a discontinued operation, and as of September 30, 1989, the company
reported its Yates Industries (Yates) copper foil business as a discontinued operation.
Accordingly, the consolidated ¬nancial statements of the company have been reclassi¬ed
to report separately the net assets and operating results of these discontinued operations.
Financial results for periods prior to the dates of discontinuance have been restated to
re¬‚ect continuing operations.
In January 1990, the company concluded the sale of its Yates operations in Europe and
its 50 percent joint venture interest in Japan. In April 1990, the company completed the
sale of its Yates operation in Bordentown, N.J. Total gross proceeds from the sale of all
Yates operations were $175,476. The proceeds from the sale of Yates operations and the
associated costs approximated management™s original estimates. Management is actively
pursuing the sale of the GSI business.
A gain from the sale of Yates, offset by provisions for a loss on the prospective sale of
GSI and costs associated with other previously discontinued businesses, resulted in a gain
of $4,391, net of income taxes, in the second quarter of 1990 from discontinued opera-
tions. The gain on the sale of Yates is net of a $14,000 provision for long-term environ-
mental costs. The gain from the sale of Yates™ foreign locations included a gain of $6,895
from the recognition of cumulative translation adjustments.
Net assets of discontinued operations were $36,681 and $170,065 at December 31,
1990 and 1989, respectively. These amounts consist of current assets; property, plant and
equipment; other noncurrent assets; and current and concurrent liabilities.
Sales applicable to the discontinued operations prior to the dates of discontinuance
were $16,158, $124,121 and $159,000 in 1990, 1989 and 1988, respectively. Interest
expense of $249, $2,730 and $2,246, net of income taxes, was allocated to the discon-
tinued operations prior to dates of discontinuance based on net assets for 1990, 1989
and 1988, respectively. The operating results of GSI from the date of discontinuance to
December 31, 1990 were immaterial.

C. Restructuring Charge
In 1989, a restructuring charge of $17,511 net of taxes, or $.71 per share, was incurred
by the company as a part of a plan to rationalize and improve pro¬tability of several
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Prospective Analysis: Valuation Theory and Concepts




11-37 Part 2 Business Analysis and Valuation Tools




businesses and product lines both in the United States and abroad. The charge is princi-
pally comprised of costs associated with product, facility and organizational rationaliza-
tion of the electrical distribution segment; product rationalization of the industrial control
segment; plant consolidation and organizational restructuring in Canada; reorganization
in Europe; and marketing restructuring.

D. Acquisitions
In 1989, the company acquired Crisp Automation, Inc. of Dublin, Ohio. Crisp Automa-
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