Danaher Annual Report 1999

FY1999 Annual Report · Danaher

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Danaher

Corporation

ANNUAL REPORT 1999

ABOUT THE COVER:
Danaher continues to reposition itself to serve
higher growth markets both internally, through new
products, new services and geographic expansion,
and externally, through acquisitions. Our front cover
features three market opportunities.

In just three years, Danaher has become the world’s
leader in water quality analytical instrumentation.
Another contributor to Danaher’s success is its motion
products – the motors, drives and related products that
power robots, treadmills and other devices requiring
precision and speed. The redesigned ratchet on the
cover, our innovative EliminatorTM ratcheting system,
has brought new excitement and accelerated sales
growth to our hand tools business. Pages 6 through 11
further expand on these growth opportunities.

DANAHER CORPORATION
Danaher Corporation designs, manufactures and
markets industrial and consumer products with
strong brand names, proprietary technology and
major market positions in two principal businesses:
Process/Environmental Controls and Tools and
Components.

Through a focused strategy, Danaher has become
a leading manufacturer, competing effectively on a
global basis by leveraging product value, quality and
customer service. Today, Danaher’s 19,000 associates
are located in 25 countries around the world.

CONTENTS
Financial Highlights
Letter to Shareholders
Danaher Business Segments
Ensuring Future Growth
Financial Section
Management and Directors
Shareholders’ Information

1
2
5
6
12
30
inside back cover

FINANCIAL HIGHLIGHTS

(000’s omitted, except per share data and number of associates)

1999

1998

OPERATIONS:
Net sales
Operating proﬁt
Net earnings
Earnings per common share (diluted)

Excluding pooling charge

Depreciation expense
Capital expenditures, net
Number of associates

FINANCIAL POSITION AT YEAR-END:

Total assets
Total debt
Stockholders’ equity
Total debt as a percent of total capitalization
Return on equity
Book value per share

$3,197,238
458,007
261,624*
1.79*
1.86
89,151
88,909
19,000

$3,047,061
384,112
192,186*
1.33*
1.53
80,258
101,614
19,000

3,047,071
374,634
1,708,754

18.0%
15.9%*
12.00

2,840,859
503,639
1,400,788

26.5%
14.6%*
9.89

*Includes $9.8 million in after-tax costs ($0.07 per share) from the merger with the Hach Company in 1999 and $28.6 million in after-tax costs ($0.20 per share)

from the merger with the Fluke Corporation in 1998

Net Sales
(dollars in millions)

Operating Profit
(dollars in millions)

Earnings per Share*
(in dollars)

3,197

3,047

2,619

2,352

2,012

458

384

1.86

1.53

319

284

231

1.31

1.17

0.97

95 96 97 98 99

12% compounded
annual growth rate

19% compounded
annual growth rate

18% compounded
annual growth rate

*From continuing operations,

excluding pooling charges

of $0.07 per share in 1999

and $0.20 per share in 1998

Year-end Market
Price of Stock
(in dollars)

54.31

48.25

31.56

23.31

15.88

95 96 97 98 99

32% compounded
annual growth rate

WE HAVE A

STRENGTHENED PRODUCT

PORTFOLIO, BALANCE SHEET

AND ORGANIZATION

TO GROW OUR

CORPORATION
SUBSTANTIALLY OVER THE

COMING YEARS…

GEORGE M. SHERMAN
President and Chief Executive Ofﬁcer

To Our

1999 PERFORMANCE

Danaher Corporation reports another

record year in 1999. Our ﬁnancial measures all reached
new highs. During the year, Danaher’s sales grew to
$3.2 billion, 5% above last year’s record performance,
and our gross margin improved 0.7%, allowing us to
increase investments in marketing, research and devel-
opment, and e-commerce while continuing to improve
operating proﬁtability. Net earnings and earnings per
share, before the inclusion of one-time costs associated
with both the Fluke acquisition in 1998 and the Hach
acquisition in 1999, were up 23% and 22%, respec-
tively, over the record performance achieved in 1998.
For the eighth consecutive year, Danaher reported
record cash ﬂow, with free cash ﬂow exceeding net
earnings. In 1999, operating cash ﬂow increased
$66 million to a record $419 million. Like a number
of industrial companies, this past year resulted in a
decline in Danaher’s share price, despite record
performance. The compounded annual growth rate
for our share price with dividends over the past ten
years is 29%, and it is our belief that excellent perfor-
mance will correlate directly with superior shareholder
value in the future.

GROWTH During 1999, our Tools and Components
Business Segment experienced a 1% price decrease but
still grew 4%, a rate higher than the industry’s average.
In our Process/Environmental Controls Business
Segment, sales increased 6% from 1998 levels after
being tempered by the expected downturn in demand
experienced in one of our businesses caused by EPA

regulatory-driven changes. Core volume grew 3.5%,
with an acquisition growth of 4% and price and for-
eign currency translation decreases totaling more than
1%. Our 1999 sales outside the U.S., including both
exports and direct sales abroad, reached $953 million
and now constitute 30% of sales.

We are focused on growth through share gains,
international expansions, aggressive new product and
service developments and e-commerce initiatives. The
acquisitions completed during the past few years have
a higher potential growth rate than the average of our
previous core companies.

ACQUISITIONS During 1999, we completed two
signiﬁcant acquisitions: the Hach Company in July
and Atlas Copco Controls in September. Hach, based
in Loveland, Colorado, positions us as the clear leader
in water quality analytical instrumentation on a world-
wide basis. Atlas Copco Controls, headquartered in
Stockholm, Sweden, adds to our motion capability and
provides a broader geographical base. Today, 40% of
our motion business is outside the United States.
While we were disappointed with the quantity of
acquisitions we were able to complete in 1999, we
were very pleased with the quality of the companies
that were added. We have increased our resources in
this area and expect to be better able to leverage our
strong cash ﬂow and low debt position into improved
shareholder value.

Shareholders

FINANCIAL STRENGTH As a result of our continued
strong cash ﬂow generation, we ended 1999 with a net
debt (debt less cash and equivalents) to total capital
ratio in single digits. Clearly, this low ratio is not a goal
in and of itself; however, it underscores our ability to
fund core growth and to add signiﬁcant, strategic
acquisitions while maintaining a strong balance sheet.

ORGANIZATIONAL DEVELOPMENT In recognition of
their contributions to Danaher and their future poten-
tial, Patrick W. Allender, H. Lawrence Culp, Jr., and
Steven E. Simms were promoted to executive vice
presidents. Additionally, in December 1999, Brian M.
McNeill joined Danaher as an executive vice president.
Brian comes from Ingersoll Rand, where he had a
17-year career, rising to become a corporate ofﬁcer and
group executive responsible for more than $1 billion
of Ingersoll Rand’s business. Together, Pat, Larry, Steve,
Brian and I manage Danaher’s strategy, performance
and organizational evolution as members of the Ofﬁce
of the Chief Executive.

Further strengthening the organization, we have
named three new group executives: William J. Butler,
an internal promotion, and Elmar F. Illek and Thomas
S. Gross, who joined us from outside the company.
Uldis K. Sipols was hired by Danaher as a corporate
ofﬁcer and vice president for Corporate Procurement.
Christopher C. McMahon was promoted to corporate
vice president and controller.

Alan G. Spoon joined Danaher’s Board of Directors in
March. As president of the Washington Post Company,
Alan brings to Danaher an excellent background in
business management and valuable experience in the
world of e-commerce and communication.

RECOGNITION Outstanding people remain the essen-
tial ingredients in our operating philosophy. This past
year, we lost an individual who has been one of our
most valuable associates, John P. Watson, vice president
and group executive. Jack worked for Danaher for the
past nine years, and, although he died in March 1999,
this organization will beneﬁt from his wisdom and
guidance for years to come. We will miss his intellect,
integrity and competitive spirit, but, most of all, we
will miss a true friend.

OPERATING PHILOSOPHY Beyond outstanding
people, the other two components in our operating
philosophy include superior market- and customer-
driven strategic plans and the management process we
call the Danaher Business System (DBS). The power
of this system was evident again this year as our gross
margin continued to improve, allowing us the oppor-
tunity to fund growth initiatives and improve our
operating income. We continually self-diagnose and
strengthen our DBS culture and system. Substantial
gains will be reﬂected as we go forward, through better
alignment of our resources and full integration of
Six-Sigma tools under the Danaher Business System
umbrella. We believe this gives us an advantage over
comparable companies. Not only do we receive the
long-term beneﬁts of using advanced statistical tech-
niques to improve quality and resultant costs, but,
perhaps more importantly, we also integrate the
Six-Sigma tools into our lean manufacturing capability.
Consequently, we are able to advance quality and
customer service and to achieve cost reductions much
more rapidly through our continuous improvement
process.

OUTLOOK As we begin the year 2000, the economies
in the U.S., Europe and Asia are more favorable than
they were a year ago. We anticipate stronger core
growth in 2000, and Danaher is better positioned to
pursue strategic acquisitions. Our cost reduction capa-
bilities and our growth initiatives should insure another
successful year ahead. Danaher’s business is a partner-
ship, and we thank all our associates, customers and
suppliers for working with us.

With another record year of sales and earnings behind
us, we now look conﬁdently toward the future. We
have a strengthened product portfolio, balance sheet
and organization to grow our corporation substantially
over the coming years and to create increased value for
our customers, associates, suppliers and shareholders.

George M. Sherman
President and Chief Executive Officer

February 23, 2000

DANAHER BUSINESS SEGMENTS

PROCESS/ENVIRONMENTAL CONTROLS
The Process/Environmental Controls Business
Segment produces a broad range of monitoring,
sensing, controlling, measuring, counting, electrical
power quality and electronic test products, systems,
instruments and components. Signiﬁcant additions
in 1999 included the Hach Company (water quality
analytical instrumentation) and Atlas Copco Controls
(electronic drives). In addition, the segment’s business
lines include A.L. Hyde, American Sigma, Anderson
Instruments, Clark Controls, Communication
Technology, Contronics, Current Technology,
Cyberex, Danaher Controls, Dr. Bruno Lange,
Dolan-Jenner, Fisher Pierce, Fluke, Gems Sensors,
Hengstler, Jennings Technology, Joslyn Electronic
Systems, Joslyn Hi-Voltage, Joslyn Sunbank, KACO,
Kistler-Morse, McCrometer, M&M Precision
Systems, Namco Controls, Paciﬁc Scientiﬁc, Partlow,
QualiTROL, Radiometer, Sonix, Veeder-Root,
Warrick and West.

TOOLS AND COMPONENTS
The Tools and Components Business Segment
manufactures and distributes a broad range of hand
tools, tool holders, storage containers, hardware,
wheel service equipment, fasteners and components
for consumer, industrial and professional markets.
Products are sold through retail channels; independent
mobile tool distributors; industrial, utility and
agricultural distributors; and original equipment
manufacturers. Typical hand tool customers range
from do-it-yourselfers and professional/industrial
end users to automotive mechanics. Component
customers, generally OEMs, include portable drill and
heavy-duty diesel engine manufacturers. Products
from the Tools and Components Business Segment
are marketed under well-recognized brand names,
including AllenTM, Ammco®, Armstrong®, Coats®,
Sears Craftsman®, Delta®, Holo-Krome®, Jacobs®,
Jobox®, Joslyn, K-D®, Matco®, NAPA® and SATA.

1999 SALES
Process/Environmental Controls 58%
Tools and Components 42%

1999 OPERATING PROFIT
Process/Environmental Controls 60%
Tools and Components 40%

INDUSTRIES AND LOCAL GOVERNMENTS

DEPEND ON DANAHER PRODUCTS

TO ASSURE THAT THE WATER WE USE

IN OUR DAILY LIVES IS SAFE AND CLEAN.

Water Qu

6
6

From just a vision, during the past three years, Danaher

has emerged as the global leader in the multibillion-dollar water
analytical instrumentation industry. This position was further
solidiﬁed during 1999 through the acquisition of the Hach
Company, based in Loveland, Colorado. The Hach Company
complements Dr. Bruno Lange, a 1998 acquisition, and together
they form the core of Danaher’s water quality strategy.

Hach derives 70% of its business in North America by
focusing on clean water applications for municipal and
industrial customers. With the largest direct water quality sales
force in North America and a broad product line, Hach has
built a reputation for quality, technological leadership and
new product development. Dr. Bruno Lange, headquartered in
Düsseldorf, Germany, generates 95% of its sales from Europe
and is well known for its exceptional customer service and its
expertise in municipal wastewater applications.

The combination of these two businesses, plus our other related
businesses, have already delivered some important successes.
Through consolidation of this immense but highly fragmented
growth market, the Water Quality Group has become the global
market-share leader, with number one or number two positions
in each of its key segments. Across the businesses, complementary
technology and product development strengths allow Danaher
to develop global product strategies that bring a higher quality
level and a greater range of solutions to the market. Our com-
bined distribution, service and support offer critical insight
into customer needs and the means to provide world-class
products and services.

The Water Quality Group has accelerated their global new
product development program. New products include a patented
method used in the detection of coliforms and E. coli in drinking
water. This easy-to-use technique is the only membrane-ﬁltration
broth approved for EPA reporting of total coliforms and E. coli.

Hach began implementing the Danaher Business System in
Loveland. In less than two months, manufacturing ﬂoor space
was reduced by over 50%, and direct labor productivity improved
15%. Cross-branded products from Germany have already been
launched into the U.S. market. The Water Quality Group will
aggressively pursue growth opportunities through global product
development and worldwide distribution, as well as through
acquisitions and continuous efﬁciency improvements.

ality

DANAHER’S MOTION PRODUCTS BRING SPEED,

PRECISION AND EFFICIENCY TO INDUSTRIES

AS DIVERSE AS ROBOTICS, FOOD PACKAGING

AND EXERCISE EQUIPMENT.

Motion

Many of today’s product and machine

innovations rely upon electronic motion control. Global
competition and technical advances have propelled the need
for innovation in smaller packages that provide greater accuracy,
ﬂexibility and improved productivity. The net result has been
the creation of an exciting and diverse multibillion-dollar,
global growth industry in general motion control products.

The general motion control market has emerged from a
fragmented group of suppliers who focused primarily on speciﬁc
niche market applications. Danaher recognized the opportunity
to build a signiﬁcant presence with innovative, high-performance
motion solution products and services. The 1998 acquisition of
Paciﬁc Scientiﬁc added momentum to our existing base of
Danaher Controls and Hengstler motion feedback systems by
providing us with high-performance motors and drives. In
September 1999, Danaher built upon this foundation with the
addition of Swedish-based Atlas Copco Controls, a leading
European manufacturer of custom drives.

Danaher now brings its customers a higher level of competence
in the design, manufacture and application engineering of
motion control. The Danaher motion team works closely with
a diverse customer base to provide innovative and complete
motion solution packages. Some examples include: semiconduc-
tor manufacturers seeking compact, high-speed precision control
fabrication equipment to provide outstanding reliability and
better utilization of premium cleanroom space; consumer goods
companies, which require packaging machinery that provides
ﬂexibility and high throughput to efﬁciently ﬁll the wide range
of packaging seen on grocery store shelves; shipping companies
which are automating package handling to meet the rapid
growth needs in delivery capacity that are being driven by online
purchasing; and wheelchair manufacturers who are developing
revolutionary, advanced mobility systems for the disabled.

Danaher is well situated to build upon its leadership position
in the fragmented motion control marketplace. Strong market
positions in Europe and North America, coupled with the
power of new products, customer solutions and the Danaher
Business System, will combine to drive high levels of customer
satisfaction, leading to strong, proﬁtable growth in market share.

THE DEMAND FOR HAND TOOLS GROWS WITH
THE INTRODUCTION OF INNOVATIVE NEW PRODUCTS
DESIGNED TO BETTER MEET SPECIFIC USER NEEDS.

Hand Too

Fueled by its new product success, Danaher

continues to increase mechanics hand tools sales and grow
its market-share position. The high-end segment of the hand
tool market is served by the Armstrong and Matco brands,
which have grown at a 16% compounded annual growth
rate over the past two years.

Through extensive market research, we have found that our
core industrial end users are always searching for new solutions
to their complex maintenance, repair and assembly jobs. We
work to understand their jobs and are designing our products
to satisfy their needs for increased speed, access and strength.
One of our new products, the Armstrong Eliminator ratchet-
ing system, is 50% more compact, 40% stronger and lasts
70% longer than a conventional ratcheting system. We have
continued to build upon this basic product and now offer
more size ranges and options to our Eliminator line. The
Eliminator is now known to end users in industries as diverse
as petrochemicals, pulp and paper products, and transporta-
tion. Other innovative new product lines, such as the geared
box wrench, are also supported with extensive sampling and
promotional campaigns.

Matco, our mobile tool distributor, experienced double-digit
sales increases again in 1999. This growth has been propelled
by Special Forces, Matco’s version of the low-proﬁle ratchet.
Sales of Special Forces doubled in 1999 as the line continued
to expand, including a new air ratchet. Matco’s growth was
further stimulated by the sales of toolboxes. The new and
exclusive Cad Yellow boxes, featuring increased storage and
a range of related accessories, were supported by a comprehen-
sive marketing program coordinated with distributors and
aimed at building end user brand awareness. The combination
of innovative new products and strong marketing programs
resulted in Matco’s third straight year of share gains in this
important market.

SELECTED FINANCIAL DATA

(000’s omitted, except per share data)

1999

1998

1997

1996

1995

Sales
Operating proﬁt
Earnings from continuing operations

Per share

Diluted
Basic

Discontinued operations

Per share

Diluted
Basic
Net earnings
Earnings per share
Diluted
Basic
Dividends per share
Total assets
Total debt

$3,197,238 $3,047,061 $2,619,100 $2,352,249 $2,011,529
230,906
138,899

458,007
261,624**

384,112
192,186*

319,346
188,576

284,411
166,511

1.79**
1.84**
—

—
—

261,624**

1.79**
1.84**
0.07
3,047,071
374,634

1.33*
1.37*
—

1.31
1.35
—

1.17
1.19
79,811

0.97
1.00
2,550

—
—
192,186*

—
—
188,576

0.56
0.57
246,322

0.02
0.02
141,449

1.31
1.35
0.10

1.33*
1.37*
0.09

1.72
1.76
0.10
2,840,859 2,264,741 2,148,888
239,927
229,095

503,639

0.99
1.01
0.10
1,848,335
294,547

* Includes $28.6 million in after-tax costs ($0.20 per share) from the merger with the Fluke Corporation

** Includes $9.8 million in after-tax costs ($0.07 per share) from the merger with the Hach Company

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Danaher Corporation (the “Company”) operates a variety of businesses through its wholly owned subsidiaries. These
businesses are conducted in two business segments: Process/Environmental Controls and Tools and Components. In its
Process/Environmental Controls segment, the Company is a leading producer of compact electronic test instruments, leak
detection sensors for underground fuel storage tanks and motion, position, temperature, pressure, level, ﬂow, water quality
and power reliability and quality control devices. In Tools and Components, the Company is the principal manufacturer of
Sears, Roebuck and Company’s Craftsman® line, National Automotive Parts Association (NAPA®) line, K-D® automotive
line, and the Matco®, Armstrong® and Allen™ lines of mechanics’ hand tools. The Company also manufactures Allen™
wrenches, Jacobs® drill chucks and diesel engine retarders, Delta® storage containers and Coats® and Ammco® wheel service
equipment.

Presented below is a summary of sales by business segment (000’s omitted).

$
1,854,184
1,343,054
3,197,238

1999

%
58.0
42.0
100.0

$
1,752,552
1,294,509
3,047,061

1998

%
57.5
42.5
100.0

$
1,426,339
1,192,761
2,619,100

1997

%
54.5
45.5
100.0

Process/Environmental Controls
Tools and Components

PROCESS/ENVIRONMENTAL CONTROLS

The Process/Environmental Controls segment includes Hach Company, Fluke Corporation, Veeder-Root Company,
Danaher Controls, Partlow, Anderson Instruments, West Instruments, QualiTROL Corporation, A.L. Hyde Company,
Hengstler, the controls product line business units of Joslyn Corporation and Paciﬁc Scientiﬁc Company, Namco Controls,
Atlas Copco Controls, M&M Precision Systems, Communications Technology Corporation, Current Technology, Gems
Sensors, and the Dr. Bruno Lange Group. These companies produce and sell water testing instruments and chemicals, com-
pact electronic test instruments, underground storage tank leak detection systems and temperature, level, motion and position
sensing devices, water/wastewater test and monitoring instruments, power switches and controls, power protection products,
aviation safety products, liquid ﬂow measuring devices, quality assurance products and systems, and electronic and mechanical
counting and controlling devices. These products are distributed by the Company’s sales personnel and independent represen-
tatives to original equipment manufacturers, distributors and end-users.

1999 COMPARED TO 1998

1999 sales increased 6% from 1998 levels. Net unit volume increases of 3.5% were driven by gains in the water quality and
power quality product lines, offset by lower sales of underground storage tank monitoring systems. 1999 was negatively
impacted by price decreases and foreign currency translation decreases totaling over 1%. Acquisition activity contributed
4% of the increase, due primarily to the full-year impact of the Paciﬁc Scientiﬁc Company and Dr. Bruno Lange Group
acquisitions. Operating margins increased from 13.7% to 15.5% due to overall cost reductions and improvements in
margins of the businesses acquired in 1998.

1998 COMPARED TO 1997

Sales in 1998 were 23% higher than in 1997 for this segment. The acquisitions of Paciﬁc Scientiﬁc Company and the Dr.
Bruno Lange Group, the full-year effect of the Gems Sensors acquisition in August, 1997 and several minor business acquisi-
tions and dispositions provided a 20% increase from 1997. The remainder of the sales change was generated by an increase in
unit volume of 3%, with prices essentially ﬂat. Operating margins increased from 13.3% to 13.7%, due to higher sales of
environmental products, cost reductions and the elimination of Fluke’s 1997 European restructuring activities, offset by lower
operating margins of businesses acquired in 1998.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TOOLS AND COMPONENTS

The Tools and Components segment is comprised of the Danaher Hand Tool Group (including Special Markets, Asian Tools,
Professional Tools and Matco Tools divisions), Jacobs Chuck Manufacturing Company, Delta Consolidated Industries, Jacobs
Vehicle Systems, Hennessy Industries and the hardware and electrical apparatus lines of Joslyn Manufacturing Company.
This segment is one of the largest domestic producers and distributors of general purpose and specialty mechanics’ hand tools.
Other products manufactured by these companies include toolboxes and storage devices, diesel engine retarders, wheel service
equipment, drill chucks, custom designed headed tools and components, hardware and components for the power generation
and transmission industries, high-quality precision socket screws, fasteners, and high-quality miniature precision parts.

1999 COMPARED TO 1998

Sales in 1999 were 4% higher than in 1998. This increase consists of higher unit shipment volume of 5%, offset by price
decreases of 1%. Demand for diesel engine retarders and professional mechanics’ tools was particularly strong in 1999.
Operating margins increased from 12.3% to 14.0%, driven by higher sales volumes spread over a ﬁxed cost base and
continued manufacturing cost improvements.

1998 COMPARED TO 1997

Sales increased 8.5% from 1997 to 1998. Unit volume increases of 10%, offset by price decreases of 1.5%, accounted for this
increase. Operating proﬁt margins increased from 12.1% in 1997 to 12.3% in 1998, driven by higher sales levels and produc-
tivity gains. Demand levels were strong across consumer, professional and international hand tool lines. Sales of diesel engine
retarders were also strong in 1998.

GROSS PROFIT

Gross proﬁt, as a percentage of sales, was 38.7% in 1999, a 0.7 percentage point improvement compared to 38.0% achieved
in 1998. Product and manufacturing overhead cost reductions, combined with increases in higher margin product lines, drove
this improvement.

Gross proﬁt margin was 38.0% in 1998, a 1.5 percentage point increase compared to 1997. Productivity improvements were
achieved in all business segments. Higher volume levels and a shift in mix to the higher gross margin products of the acquired
companies in the Process/Environmental Controls business segment contributed to the improvement.

OPERATING EXPENSES

In 1999, selling, general and administrative expenses were 24.3% of sales, an improvement of 1.1 percentage points from
1998 levels. Cost reductions in administrative overhead expenses and higher sales levels spread over a ﬁxed cost base generated
this improvement.

Selling, general and administrative expenses for 1998 as a percentage of sales were 1.1 percentage points higher than the 1997
level. This reﬂects the higher operating expense levels of the businesses acquired in 1998.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTEREST COSTS AND FINANCING TRANSACTIONS

The Company’s debt ﬁnancing is composed primarily of publicly issued 6% notes due 2008, privately placed debt maturing
in April 2003 at an average interest cost of 7%, uncommitted lines and a revolving credit facility which provides senior
ﬁnancing of $250 million for general corporate purposes. The interest rates for borrowing under the facility ﬂoat with base
rates. Interest expense in 1999 was $9.6 million lower than in 1998, due to lower debt and higher cash levels generated pri-
marily by substantial cash ﬂow from operations. Interest expense in 1998 was $13.3 million higher than in 1997, as average
borrowing levels increased due to acquisitions.

INCOME TAXES

The 1999 effective rate of 39.1% is 0.3 percentage points lower than in 1998. This decrease results primarily from a lower
ratio of nondeductible amortization compared to taxable income. The 1998 effective tax rate of 39.4% is 1.0 percentage point
higher than in 1997, resulting from the nondeductible expenses associated with the Fluke Corporation merger in July 1998.

INFLATION

The effect of inﬂation on the Company’s operations has been minimal in 1999, 1998 and 1997.

READINESS FOR YEAR 2000

The Company experienced no signiﬁcant systems or other Y2K effects with transitioning into the new year. No disturbance
arose from customers or vendors associated with the new year. Although the Company believes there is no material risk expo-
sure, the Year 2000 Readiness Plan as discussed in the Current Report dated July 9, 1998 remains in place.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could
impact its results of operations and ﬁnancial condition. The Company manages its exposure to these risks through its normal
operating and ﬁnancing activities. There were no material derivative instrument transactions during any of the periods pre-
sented. The Company has generally accepted the exposure to exchange rate movements relative to its investment in foreign
operations without using derivative ﬁnancial instruments to manage this risk.

The fair value of the Company’s ﬁxed-rate long-term debt is sensitive to changes in interest rates. The value of this debt is
subject to change as a result of movements in interest rates. Sensitivity analysis is one technique used to evaluate this potential
impact. Based on a hypothetical immediate 100 basis point increase in interest rates at December 31, 1999, the market
value of the Company’s ﬁxed-rate long-term debt would be impacted by a net decrease of $17 million. This methodology
has certain limitations, and these hypothetical gains or losses would not be reﬂected in the Company’s results of operations
or ﬁnancial conditions under current accounting principles.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

In 1999, the Company acquired Atlas Copco Controls and additional smaller businesses for a total of $65 million. The
Company also acquired Paciﬁc Scientiﬁc Company for approximately $420 million in cash in March 1998. See Note 2 to
Consolidated Financial Statements for a further discussion of the impact of acquisitions. In January 1996, the Company
sold its Fayette Tubular Products subsidiary for $155 million.

As discussed previously, $250 million of the Company’s debt is ﬁxed at an average interest cost of 6%, and $30 million is ﬁxed
at an interest rate of 7%. Substantially all remaining borrowings are short-term in nature and ﬂoat with referenced base rates.
As of December 31, 1999, the Company has unutilized commitments under its revolving credit facility of $250 million. As
of December 31, 1999, the Company held $260 million of cash and cash equivalents. These amounts are invested in highly
liquid investment grade debt instruments with a maturity of ninety days or less.

Cash ﬂow has been strong in all periods from 1997 through 1999. In July, 1999, the Company sold $70 million of treasury
stock through its Hach Company subsidiary. Operations generated $419 million, $353 million and $343 million in cash in
1999, 1998 and 1997, respectively. The principal use of funds has been capital expenditures of $89 million, $102 million and
$97 million in 1999, 1998 and 1997, respectively, and net cash paid for acquisitions of $65 million, $532 million and $147
million in 1999, 1998 and 1997, respectively. The net result of the above, combined with working capital changes, was a
decrease in debt of $130 million in 1999, an increase in debt of $215 million in 1998 and a decrease of $11 million in 1997.

The Company’s funds provided from operations, as well as the existing bank facility and available credit lines, should provide
sufﬁcient available funds to meet the Company’s working capital, capital expenditure, dividend and debt service requirements
for the foreseeable future.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF DANAHER CORPORATION:

We have audited the accompanying consolidated balance sheets of Danaher Corporation (a Delaware corporation) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, stockholders’ equity,
and cash ﬂows for each of the three years in the period ended December 31, 1999. These consolidated ﬁnancial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
ﬁnancial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements.
An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as well as
evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the ﬁnancial statements referred to above present fairly, in all material respects, the ﬁnan-
cial position of Danaher Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations
and their cash ﬂows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted
accounting principles.

Baltimore, Maryland
January 27, 2000

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

Year Ended December 31,

Sales
Cost of sales
Selling, general and administrative expenses

Total operating expenses

Operating proﬁt
Other expense
Interest expense
Earnings before income taxes
Income taxes
Net earnings

Basic earnings per share:

Net earnings

Average shares outstanding

Diluted earnings per share:

Net earnings

1999

$3,197,238
1,960,822
778,409
2,739,231
458,007
11,778
16,667
429,562
167,938
$ 261,624

1.84
141,832

1.79

1998

$3,047,061
1,889,229
773,720
2,662,949
384,112
40,796
26,307
317,009
124,823
$ 192,186

1.37
139,816

1.33

1997

$2,619,100
1,663,491
636,263
2,299,754
319,346

—

12,993
306,353
117,777
$ 188,576

1.35
139,725

1.31

Average common stock and common equivalent

shares outstanding

146,089

143,987

143,479

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONSOLIDATED BALANCE SHEETS

(in thousands)

As of December 31,

Assets
Current assets:
Cash and equivalents
Trade accounts receivable, less allowance for doubtful

accounts of $28,000 and $24,000

Inventories
Prepaid expenses and other
Total current assets

Property, plant and equipment, net
Other assets
Excess of cost over net assets of acquired companies, less

accumulated amortization of $196,000 and $159,000

Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable and current portion of debt
Trade accounts payable
Accrued expenses

Total current liabilities

Other liabilities
Long-term debt
Stockholders’ equity:

Common stock, one cent par value; 300,000 shares
authorized; 154,035 and 153,297 issued;
142,440 and 141,701 outstanding

Additional paid-in capital
Accumulated other comprehensive income
Retained earnings

Total stockholders’ equity

The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.

1999

1998

$ 260,281

47,798

544,738
324,673
72,425
1,202,117
500,189
52,476

1,292,289
$3,047,071

33,597
213,209
461,980
708,786
288,494
341,037

1,540
420,036
(34,105)
1,321,283
1,708,754
$3,047,071

485,543
337,481
60,874
931,696
510,198
111,203

1,287,762
$2,840,859

59,721
161,782
479,743
701,246
294,907
443,918

1,533
332,057
(2,373)
1,069,571
1,400,788
$2,840,859

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Cash flows from operating activities:
Earnings from continuing operations
Depreciation and amortization
Change in accounts receivable
Change in inventories
Change in accounts payable
Change in other assets and liabilities

Total operating cash ﬂows

Cash flows from investing activities:
Payments for additions to property, plant and equipment, net
Disposition of businesses
Net cash paid for acquisitions

Net cash used in investing activities

Cash flows from financing activities:
Proceeds from sale of treasury stock
Proceeds from issuance of common stock
Dividends paid
Borrowings (repayments) of debt
Purchase of common stock

Net cash provided by (used in) ﬁnancing activities

Effect of exchange rate changes on cash
Net change in cash and equivalents
Beginning balance of cash and equivalents
Ending balance of cash and equivalents

Supplemental disclosures:
Cash interest payments

Cash income tax payments

1999

1998

1997

$261,624
126,419
(60,327)
11,149
45,852
34,390
419,107

(88,909)
—
(64,834)
(153,743)

69,845
18,141
(9,912)
(129,851)
—
(51,777)
(1,104)
212,483
47,798
$260,281

$ 16,348

$114,617

$192,186
114,527
4,409
13,851
(13,869)
41,578
352,682

(101,614)
16,250
(532,368)
(617,732)

—
30,545
(12,840)
214,905
(2,066)
230,544
1,726
(32,780)
80,578
$ 47,798

$ 26,495

$ 79,301

$188,576
98,338
(50,978)
10,742
22,956
73,548
343,182

(96,946)
—
(147,238)
(244,184)

—
9,075
(14,525)
(10,801)
(80,223)
(96,474)
(1,453)
1,071
79,507
$ 80,578

$ 14,875

$ 86,156

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

—
—
1,700
(3,500)

(18,666)
—
$168,110

192,186
—

—
—
—

12,777
(1,700)
$203,263

261,624
—

—
—

(in thousands)

Balance, December 31, 1996
Net earnings for the year
Dividends declared
Common stock issued for
options exercised

Purchase of common stock
Unrealized gain on securities held
Sale of securities held
Decrease from translation of foreign

ﬁnancial statements

Other

Balance, December 31, 1997

Net earnings for the year
Dividends declared
Common stock issued for
options exercised

Purchase of common stock
Common stock issued for acquisitions
Increase from translation of foreign

Common Stock

Amount

Additional

Paid-in

Capital

Accumulated

Other

Retained

Earnings

Comprehensive

Income

152,752
—
—

$1,528
—
—

$365,135
—
—

$ 717,078
188,576
(14,525)

$ 7,516
—
—

—
$188,576
—

180
—
—
—

2
—
—
—

9,073
(80,223)
—
—

—
—
—
—

—
—
1,700
(4,000)

—
—
152,932

—
—
$1,530

—
935

—
(904)
$294,920 $ 890,225

(18,666)
—
$(13,450)

—
—

365
—
—

—
—

3
—
—

—
—

192,186
(12,840)

30,542
( 2,066)
8,661

—
—
—

—
—

—
—
—

ﬁnancial statements

Sale of securities held
Balance, December 31, 1998

—
—
153,297

—
—
$1,533

—
—

—
—
$332,057 $1,069,571

12,777
(1,700)
$ (2,373)

Net earnings for the year
Dividends declared
Common stock issued for
options exercised
Sale of treasury stock
Decrease from translation of foreign

—
—

738
—

—
—

7
—

—
—

261,624
(9,912)

18,134
69,845

—
—

ﬁnancial statements

Balance, December 31, 1999

—
154,035

—
$1,540

—
$420,036

—
$1,321,283

(31,732)
$(34,105)

(31,732)
$229,892

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies:

ACCOUNTING PRINCIPLES The consolidated ﬁnancial state-
ments include the accounts of the Company and its sub-
sidiaries. The accounts of certain of the Company’s foreign
subsidiaries are included on the basis of a ﬁscal year ending
November 30. This procedure was adopted to allow sufﬁcient
time to include these companies in the consolidated ﬁnancial
statements. All signiﬁcant intercompany balances and transac-
tions have been eliminated upon consolidation.
USE OF ESTIMATES The preparation of ﬁnancial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and dis-
closure of contingent assets and liabilities at the date of the
ﬁnancial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
INVENTORY VALUATION Inventories include material, labor
and overhead and are stated principally at the lower of cost or
market using the last-in, ﬁrst-out method (LIFO).
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment are carried at cost. The provision for depreciation
has been computed principally by the straight-line method
based on the estimated useful lives (3 to 35 years) of the
depreciable assets.
OTHER ASSETS Other assets include principally deferred
income taxes, noncurrent trade receivables and capitalized
costs associated with obtaining ﬁnancings which are being
amortized over the term of the related debt.
FAIR VALUE OF FINANCIAL INSTRUMENTS For cash and
equivalents, the carrying amount is a reasonable estimate of
fair value. For long-term debt, rates available for debt with
similar terms and remaining maturities are used to estimate
the fair value of existing debt.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES
This asset is being amortized on a straight-line basis over forty
years. $37,268,000, $34,269,000 and $25,786,000 of amorti-
zation was charged to expense for the years ended December 31,
1999, 1998 and 1997, respectively. When events and circum-
stances so indicate, all long-term assets, including the Excess
of cost over net assets of acquired companies, are assessed for
recoverability based upon cash ﬂow forecasts. Should an
impairment exist, fair value estimates would be determined
based on the cash ﬂow forecasts, discounted at a market rate
of interest.
FOREIGN CURRENCY TRANSLATION Exchange adjustments
resulting from foreign currency transactions are generally
recognized in net earnings, whereas adjustments resulting
from the translation of ﬁnancial statements are reﬂected as
a component of accumulated other comprehensive income
within stockholders’ equity. Net foreign currency transaction
gains or losses are not material in any of the years presented.

STATEMENTS OF CASH FLOWS The Company considers all
highly liquid investments with a maturity of three months or
less at the date of purchase to be cash equivalents.
INCOME TAXES The Company provides income taxes for
unremitted earnings of foreign subsidiaries which are not
considered permanently reinvested in that operation.
EARNINGS PER SHARE The computation of diluted
earnings per share is based on the weighted average number
of common shares and common stock equivalents outstanding
during the year.
ACCUMULATED OTHER COMPREHENSIVE INCOME This
consists of the following as of December 31 (000’s omitted):

1999

1998

1997

Cumulative foreign

translation adjustment $(34,105) $(2,373) $(15,150)

Unrealized gain on

securities

(2) Acquisitions:

—

1,700
$(34,105) $(2,373) $(13,450)

—

On July 14, 1999, Hach Company was acquired and merged
into the Company. The Company issued 0.2987 shares of
common stock in exchange for each outstanding share of
Hach; 6,594,430 shares were exchanged for all outstanding
Hach shares. The transaction was a tax-free reorganization and
was accounted for as a pooling-of-interests. Accordingly, the
ﬁnancial statements as presented have been restated to reﬂect
the combined companies. Hach Company’s year-end was a
ﬁscal year ending on April 30. To combine with the Company,
the twelve month periods ending January 30, 1999 and Janu-
ary 31, 1998 for Hach have been utilized. Hach is engaged in
the manufacture and marketing of instruments and kits to
analyze chemical and other properties of water and aqueous
solutions. Reﬂected in Other expense is a one-time charge of
$11.8 million ($9.8 million after-tax or $.07 per share) to
reﬂect the costs of the transaction and the elimination of
redundant activities and operations. The majority of these
costs are cash expenses and were incurred during 1999.

On July 9, 1998, Fluke Corporation was acquired and
merged into the Company. The Company issued 17,785,122
shares of common stock in exchange for all outstanding Fluke
shares; 0.90478 shares were exchanged for each Fluke share.
The transaction was a tax-free reorganization and was accounted
for as a pooling-of-interests. Accordingly, the ﬁnancial state-
ments as presented have been restated to reﬂect the combined
companies. Fluke Corporation’s year-end was a 52/53-week
ﬁscal year ending on the last Friday in April. To combine with
the Company, the twelve month periods ending January 23,
1998 and January 24, 1997 for Fluke have been utilized. Fluke
is engaged in the manufacture and marketing of compact,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

professional electronic test tools. Reﬂected in Other expense is
a one-time charge of $40.8 million ($28.6 million after-tax or
$.20 per share) to reﬂect the costs of the transaction and inte-
grating and implementing efﬁciencies associated with informa-
tion, operational and administrative systems. The majority of
these costs are cash expenses and were incurred during 1998.
The Company acquired Paciﬁc Scientiﬁc Company as of
March 9, 1998. Total consideration was approximately $420
million. The fair value of assets acquired was approximately
$520 million and approximately $100 million of liabilities were
assumed. The transaction is being accounted for as a purchase.
The unaudited pro forma information for the period set
forth below gives effect to this transaction as if it had occurred
at the beginning of the period. The pro forma information is
presented for informational purposes only and is not necessar-
ily indicative of the results of operations that actually would
have been achieved had the acquisition been consummated as
of that time (unaudited, 000’s omitted):

Year ended December 31,

1998

1997

Net sales
Net earnings from

$3,118,643

$2,929,560

continuing operations

190,530

181,580

Earnings per share
from continuing
operations (diluted)

(3) Inventory:

1.32

1.27

The major classes of inventory are summarized as follows
(000’s omitted):

Finished goods
Work in process
Raw material

December 31, 1999

December 31, 1998

$128,134
67,437
129,102
$324,673

$130,463
75,768
131,250
$337,481

If the ﬁrst-in, ﬁrst-out (FIFO) method had been used for
inventories valued at LIFO cost, such inventories would have
been $11,394,000 and $10,615,000 higher at December 31,
1999 and 1998, respectively.

(4) Property, Plant and Equipment:

The major classes of property, plant and equipment are sum-
marized as follows (000’s omitted):

December 31, 1999

December 31, 1998

Land and

improvements

Buildings
Machinery and
equipment

Less accumulated
depreciation

(5) Financing:

25,595
209,118

818,200
1,052,913

26,607
207,933

768,990
1,003,530

(552,724)
$ 500,189

(493,332)
$ 510,198

Financing consists of the following (000’s omitted):

December 31,

1999

1998

Notes payable due 2008
Notes payable due 2003
Notes payable due 1999
Other

Less-currently payable

$250,000
30,000
—
94,634
374,634
33,597
$341,037

$250,000
30,000
41,200
182,439
503,639
59,721
$443,918

The Notes due 2008 were issued in October 1998 at an
average interest cost of 6.1%. The Company has complied
with covenants relating to limitations on secured debt and sale
and leaseback transactions. The carrying amount approximates
fair value.

The Notes due 2003 had an original average life of approx-
imately 10 years and an average interest cost of 7%.The carry-
ing amount approximates fair value.

The Notes due 1999 had an original average life of approx-
imately 7 years and an average interest cost of 7.3%. The esti-
mated fair value of the Notes was approximately $41.7 million
at December 31, 1998.

Other includes principally short-term borrowings under
uncommitted lines of credit which are payable upon demand.
The carrying amount approximates fair value. The weighted

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Approximately $7 million of accrued expenses and other
liabilities were guaranteed by bank letters of credit.

(7) Pension and Employee Benefit Plans:

The Company has noncontributory deﬁned beneﬁt pension
plans which cover certain of its domestic hourly employees.
Beneﬁt accruals under most of these plans have ceased, and
pension expense for deﬁned beneﬁt plans is not signiﬁcant for
any of the periods presented. It is the Company’s policy
to fund, at a minimum, amounts required by the Internal
Revenue Service.

In addition to providing pension beneﬁts, the Company

provides certain health care and life insurance beneﬁts for
some of its retired employees. Certain employees may become
eligible for these beneﬁts as they reach normal retirement age
while working for the Company.

The following sets forth the funded status of the plans as of
the most recent actuarial valuations using a measurement date
of September 30 (millions):

average interest rate for short-term borrowings was 5.3%,
5.8% and 5.9% for each of the three years ended December
31, 1999, 1998 and 1997, respectively. The Company also has
a bank credit facility which provides revolving credit through
September 30, 2001, of up to $250 million. The Company
has complied with covenants relating to maintenance of work-
ing capital, net worth, debt levels, interest coverage, and pay-
ment of dividends applicable to the Notes due 2003 and the
revolving credit facility. The facility provides funds for general
corporate purposes at an interest rate of LIBOR plus .125%.
There were no borrowings under the bank facility during
the three years ended December 31, 1999. The Company
is charged a fee of .075% per annum for the facility.
Commitment and facility fees of $187,500 were incurred
in 1999, 1998 and 1997.

Other debt is classiﬁed as noncurrent as management
intends to reﬁnance it and the bank credit facility provides the
ability to reﬁnance maturities to September 30, 2001.

The minimum principal payments during the next ﬁve years

are as follows: 2000 – $33,597,000; 2001 – $57,061,000;
2002 – $724,000; 2003 – $30,356,000; 2004 – $310,000;
and $252,586,000 thereafter.

(6) Accrued Expenses and Other Liabilities:

Selected accrued expenses and other liabilities include the
following (000’s omitted):

December 31, 1999

December 31, 1998

Current Noncurrent

Compensation
and beneﬁts

$126,130 $54,057 $114,393 $49,143

Claims, including
self insurance
and litigation
Post retirement

16,221

91,920

15,051

85,286

beneﬁts

5,000

73,006

5,000

75,500

Environmental
and regulatory
compliance
Taxes, income
and other

34,156

60,719

38,209

67,926

45,065

7,950

59,814

7,699

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Change in beneﬁt obligation:
Beneﬁt obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial gain (loss)
Acquisition
Beneﬁts paid
Beneﬁt obligation at end of year

Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Acquisition
Employer distribution
Beneﬁts paid
Fair value of plan assets at end of year

Funded status
Unrecognized net actuarial gain
Prepaid (accrued) beneﬁt cost

Pension Benefits

Other Benefits

1999

1998

1999

1998

$267.8
12.9
17.2
—
—
(27.0)
—
(21.1)
249.8

287.8
47.7
—
—
(21.1)
314.4

64.6
(47.7)
$ 16.9

$194.6
12.0
15.6
—
(20.0)
18.4
65.5
(18.3)
267.8

232.6
5.4
70.1
(2.0)
(18.3)
287.8

20.0
(2.7)
$ 17.3

$ 72.8
0.5
4.7
—
—
(8.2)
—
(6.1)
63.7

—
—
—
—
—
—

$ 70.8
0.4
4.9
—
—
0.6
—
(3.9)
72.8

—
—
—
—
—
—

(63.7)
(14.3)
$(78.0)

(72.8)
(7.7)
$ (80.5)

Weighted-average assumptions as of December 31:
Discount rate
Expected return on plan assets

7.75%
10.0%

6.75%
10.0%

7.75%
—

6.75%
—

For measurement purposes, an 8 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed

to decrease gradually to 6 percent by 2002 and remain at that level thereafter.

Components of net periodic beneﬁt cost:
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial gain
Net periodic beneﬁt cost

The Company acquired Paciﬁc Scientiﬁc Company on
March 9, 1998, including their pension and postretirement
beneﬁt plans.

Assumed health care cost trend rates have a signiﬁcant
effect on the amounts reported for the health care plans.
A one-percentage point change in assumed health care cost
trend rates would have the following effects:

Effect on total of service and
interest cost components

Effect on postretirement
beneﬁt obligation

1-Percentage

Point Increase

Point Decrease

$0.5

6.5

$(0.5)

(5.9)

$ 12.9
17.2
(27.4)
(2.2)
$ 0.5

$ 12.0
15.6
(22.0)
(0.3)
$ 5.3

$ 0.5
4.7
—
(1.0)
$ 4.2

0.4
4.9
—
(1.0)
4.3

Substantially all employees not covered by deﬁned beneﬁt
plans are covered by deﬁned contribution plans which gener-
ally provide funding based on a percentage of compensation.
Pension expense for all plans amounted to $35,624,000,
$33,303,000 and $33,450,000 for the years ended December
31, 1999, 1998 and 1997, respectively.

(8) Stock Transactions:

The common stock of the Company was split two-for-one to
holders of record as of May 5, 1998. All common stock and
per share amounts have been restated to reﬂect the stock split
for all periods presented.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nonqualiﬁed options have been issued only at fair market
value exercise prices as of the date of grant during the periods
presented herein, and the Company’s policy does not recog-
nize compensation costs for options of this type. Beginning
in 1996, the pro forma costs of these options granted subse-
quent to January 1, 1995 have been calculated using the
Black-Scholes option pricing model and assuming a 6%
risk-free interest rate, a 10-year life for the option, a 37%
expected volatility and dividends at the current annual rate.
The weighted average grant date fair market value of options
issued was $28 per share in 1999, $18 per share in 1998 and
$10 per share in 1997. Had this method been used in the
determination of income, net earnings would have decreased
by approximately $10.7 million in 1999, $7.8 million in
1998 and $5.3 million in 1997 and diluted earnings per share
would have decreased by $.07 in 1999, $.05 in 1998 and $.04
in 1997. These pro forma amounts may not be representative
of the effects on pro forma net earnings for future years.

(9) Leases and Commitments:

The Company’s leases extend for varying periods of time up
to 10 years and, in some cases, contain renewal options.
Future minimum rental payments for all operating leases
having initial or remaining noncancelable lease terms in excess
of one year are $28,000,000 in 2000, $23,000,000 in 2001,
$19,000,000 in 2002, $14,000,000 in 2003, $10,000,000
in 2004 and $22,000,000 thereafter. Total rent expense
charged to income for all operating leases was $34,000,000,
$32,000,000 and $25,000,000 for the years ended December
31, 1999, 1998 and 1997, respectively.

The Company has adopted a non-qualiﬁed stock option
plan for which it is authorized to grant options to purchase up
to 15,000,000 shares. Under the plan, options are granted at
not less than existing market prices, expire ten years from the
date of grant and generally vest ratably over a ﬁve-year period.
An option to acquire 2,000,000 shares was granted to a senior
executive outside of the plan in 1990.

Changes in stock options were as follows:

Outstanding at December 31, 1996

(average $10.18 per share)

Granted (average $24.78 per share)
Exercised (average $7.63 per share)
Cancelled
Outstanding at December 31, 1997

(average $14.86 per share)

Granted (average $43.11 per share)
Exercised (average $9.52 per share)
Cancelled
Outstanding at December 31, 1998

(average $17.26 per share)

Granted (average $49.66 per share)
Exercised (average $9.54 per share)
Cancelled
Outstanding at December 31, 1999
(at $3.19 to $67.75 per share,
average $20.48 per share)

Number of Shares

Under Option

(thousands)

7,310
3,204
(180)
(207)

10,127
1,154
(365)
(611)

10,305
942
(738)
(292)

10,217

As of December 31, 1999, options with a weighted average

remaining life of 3.8 years covering 5,717,000 shares were
exercisable at $3.19 to $45.38 per share (average $11.59
per share) and options covering 2,711,000 shares remain
available to be granted.

Options outstanding at December 31, 1999 are summa-

rized below:

Exercise

Price

$3.19 to $4.25
$5.03 to $7.47
$7.97 to $11.75
$14.13 to $20.81
$21.25 to $32.22
$35.19 to $67.75

Number

Outstanding

(thousands)

1,380
1,240
1,028
1,366
3,473
1,730

Average

Exercise

Price

$ 3.28
$ 6.39
$10.26
$15.67
$24.25
$46.64

Average

Remaining

Life

0.1 years
3 years
4 years
6 years
7 years
9 years

Number

Exercisable

(thousands)

1,380
1,240
1,028
1,151
738
180

Average

Exercise

Price

$ 3.28
$ 6.39
$10.26
$15.34
$24.35
$38.23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A subsidiary of the Company has sold, with limited
recourse, certain of its accounts and notes receivable. A
provision for estimated losses as a result of the limited
recourse has been included in accrued expenses. No gain
or loss arose from these transactions.

(11) Income Taxes:

The provision for income taxes for the years ended December
31 consists of the following (000’s omitted):

1999

1998

1997

Federal:

Current
Deferred
State and local
Foreign
Income tax provision

$111,809
16,139
11,665
28,325
$167,938

$ 90,560 $101,385
(1,751)
13,611
4,532
$117,777

12,151
6,647
15,465
$124,823

Deferred income taxes are reﬂected in Prepaid expenses
and other and in Other assets. Deferred tax assets consist of
the following (000’s omitted):

December 31,

1999

1998

Bad debt allowance
Inventories
Property, plant and equipment
Post retirement beneﬁts.
Insurance, including self-

insurance

Environmental compliance
Other accruals
All other accounts
Net deferred tax asset

$10,242
9,913
(41,564)
33,827

27,108
23,946
15,538
(19,575)
$59,435

$ 8,492
9,086
(42,669)
33,795

24,243
25,031
36,700
(19,104)
$75,574

A former subsidiary of the Company is engaged in litigation in
multiple states with respect to product liability. The Company
sold the subsidiary in 1987. Under the terms of the sale agree-
ment, the Company agreed to indemnify the buyer of the
subsidiary for product liability related to tools manufactured
by the subsidiary prior to June 4, 1987. The cases involve
approximately 3,000 plaintiffs, in state and federal courts in
multiple states. All other major U.S. air tool manufacturers are
also defendants. The gravamen of these complaints is that the
defendants’ air tools, when used in different types of manufac-
turing environments over extended periods of time, were
defective in design and caused various physical injuries. The
plaintiffs seek compensatory and punitive damages. The
Company has accepted an agreement in principle to settle
these claims. Completion of this settlement agreement will
not result in a material adverse effect on the Company’s results
of operations or ﬁnancial condition.

A subsidiary, Joslyn Manufacturing Company (JMC),
previously operated wood treating facilities that chemically
preserved utility poles, pilings and railroad ties. All such
treating operations were discontinued or sold prior to 1982.
These facilities used wood preservatives that included creosote,
pentachlorophenol and chromium-arsenic-copper. While
preservatives were handled in accordance with then existing
law, environmental law now imposes retroactive liability, in
some circumstances, on persons who owned or operated
wood-treating sites. JMC is remediating some of its former
sites and will remediate other sites in the future. The Com-
pany has made a provision for environmental remediation;
however, there can be no assurance that estimates of environ-
mental liabilities will not change.

In addition to the litigation noted above, the Company is
from time to time subject to routine litigation incidental to its
business. These lawsuits primarily involve claims for damages
arising out of the use of the Company’s products, some of
which include claims for punitive as well as compensatory
damages. The Company is also involved in proceedings with
respect to environmental matters including sites where the
Company has been identiﬁed as a potentially responsible party
under federal and state environmental laws and regulations.
The Company believes that the results of the above noted
litigation and other pending legal proceedings will not have
a materially adverse effect on the Company’s results of
operations or ﬁnancial condition, notwithstanding any
related insurance recoveries.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective income tax rate for the years ended Decem-

Operations in Different Industries—

ber 31 varies from the statutory federal income tax rate as
follows:

Year Ended December 31,

1999

1998

1997

Percentage of PreTax Earnings

1999

1998

1997

35.0% 35.0% 35.0%

2.7

3.7

3.1

1.8
(0.9)

1.4
(1.4)

2.7
(2.4)

Statutory federal
income tax rate

Increase (decrease) in tax
rate resulting from:

Permanent differences in
amortization of certain
assets for tax and ﬁnancial
reporting purposes

State income taxes
(net of federal
income tax beneﬁt)
Taxes on foreign earnings
Costs of Hach (1999)

and Fluke (1998) mergers

Effective income tax rate

0.5
0.7
39.1% 39.4% 38.4%

—

(12) Segment Data:

Operating proﬁt represents total revenues less operating

expenses, excluding Other expense, Interest expense and
Income taxes. The identiﬁable assets by segment are those
used in each segment’s operations. Intersegment amounts
are eliminated to arrive at consolidated totals.

Detailed segment data is presented in the following table

(000’s omitted):

Total Sales:
Process/

Environmental
Controls
Tools and

Components

Operating Proﬁt:

Process/

Environmental
Controls
Tools and

Components

Other

Identiﬁable Assets:

Process/

Environmental
Controls
Tools and

Components

Other

Liabilities:
Process/

Environmental
Controls
Tools and

Components

Other

$1,854,184 $1,752,552 $1,426,339

1,192,761
1,294,509
1,343,054
$3,197,238 $3,047,061 $2,619,100

$ 286,997 $ 239,794 $ 189,431

187,511
(16,501)

144,370
(14,455)
$ 458,007 $ 384,112 $ 319,346

159,225
(14,907)

$1,793,873 $1,783,142 $1,345,250

995,234
257,964

832,614
86,877
$3,047,071 $2,840,859 $2,264,741

994,364
63,353

$ 596,332 $ 595,360 $ 451,743

381,025
360,960

421,526
218,247
$1,338,317 $1,440,071 $1,091,516

374,726
469,985

Depreciation and Amortization:

Process/

Environmental
Controls
Tools and

Components

81,647

$ 69,416

$ 53,430

44,772

45,111

$ 126,419 $ 114,527 $

44,908
98,338

Capital Expenditures:

Process/

Environmental
Controls
Tools and

Components

53,358 $

61,422 $

58,642

35,551
88,909 $ 101,614 $

40,192

38,304
96,946

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operations in Geographical Areas—

Year Ended December 31,

1999

1998

1997

Total sales:

United States
Germany
United Kingdom
All other

Long-lived assets:
United States
Germany
United Kingdom
All other

Less: Deferred taxes and

ﬁnancial instruments

Sales outside the United States:

Direct sales
Exports

$2,507,517
166,268
138,066
385,387
$3,197,238

$1,747,086
22,101
24,967
50,800

(59,435)
$1,785,519

$ 689,721
263,000
$ 952,721

$2,418,500
151,136
123,511
353,914
$3,047,061

$1,821,142
22,931
21,157
43,933

(75,574)
$1,833,589

$ 628,561
259,000
$ 887,561

(13) Quarterly Data-Unaudited (000’s omitted except per share data)

$2,061,875
116,796
124,065
316,364
$2,619,100

$1,308,569
19,187
17,570
40,950

(97,588)
$1,288,688

$ 557,225
242,000
$ 799,225

1999

Net sales
Gross proﬁt
Operating proﬁt
Net earnings
Earnings per share:

Basic
Diluted

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

$793,044
295,484
102,681
59,122

$
$

.42
.41

$774,133
301,930
113,857
66,353

$
$

.47
.46

$781,867
311,068
119,216
61,846*

$
$

.43*
.42*

$848,194
327,934
122,253
74,303

$
$

.52
.51

* Includes $9.8 million after-tax costs ($0.07 per share) from the merger with Hach Company

Net sales
Gross proﬁt
Operating proﬁt
Net earnings
Earnings per share:

Basic
Diluted

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1998

$680,005
245,170
76,514
44,628

$
$

.32
.31

$773,204
292,141
97,662
55,658

$
$

.40
.39

$758,253
300,607
103,489
31,010*

$
$

.22*
.21*

$835,599
319,914
106,447
60,890

$
$

.43
.42

* Includes $28.6 million after-tax costs ($0.20 per share) from the merger with Fluke Corporation

DANAHER CORPORATION AND SUBSIDIARIES

Corporate Officers

Directors

Mortimer M. Caplin
Partner
Caplin & Drysdale

Donald J. Ehrlich
President, Chairman and
Chief Executive Ofﬁcer
Wabash National Corp.

Walter G. Lohr, Jr.
Partner
Hogan & Hartson

Mitchell P. Rales
Chairman of the
Executive Committee
Danaher Corporation

Steven M. Rales
Chairman of the Board
Danaher Corporation

George M. Sherman
President and
Chief Executive Ofﬁcer
Danaher Corporation

Alan G. Spoon
President
The Washington Post
Company

A. Emmet Stephenson, Jr.
Chairman of the Board
Startek, Inc.

George M. Sherman
President and
Chief Executive Ofﬁcer

Patrick W. Allender
Executive Vice President,
Chief Financial Ofﬁcer
and Secretary

H. Lawrence Culp, Jr.
Executive Vice President

Brian M. McNeill
Executive Vice President

Steven E. Simms
Executive Vice President

William J. Butler
Vice President and
Group Executive

Dennis D. Claramunt
Vice President and
Group Executive

Thomas S. Gross
Vice President and
Group Executive

Elmar F. Illek
Vice President and
Group Executive

Daniel L. Comas
Vice President –
Corporate Development

Mark C. DeLuzio
Vice President –
Danaher Business System

James H. Ditkoff
Vice President –
Finance & Tax

Dennis A. Longo
Vice President –
Human Resources

Christopher C. McMahon
Vice President –
Controller

Uldis K. Sipols
Vice President –
Procurement

Major Operating

Company Executives

A.L. Hyde Company
Kurt C. Glaser
President

Atlas Copco Controls
Hermann E. Braun
President (acting)

Current Technology, Inc.
Joseph W. Roark
President

Cyberex, Inc.
Maureen F. Austin
President

Danaher Controls
James W. Appelgren
President

Danaher Tool Group
Professional Tools Division
Jake R. Nichol
President

Danaher Tool Group
Special Markets Division
Thomas R. Sulentic
President

Delta Consolidated Industries
Thomas P. Joyce, Jr.
President

Dr. Bruno Lange Group
Elmar F. Illek
President

Fluke Corporation
Thomas S. Gross
President

Gems Sensors
Frank A. Wilson
President (acting)

Hach Company
Elmar F. Illek
President

Hengstler GmbH
Hermann E. Braun
President

Hennessy Industries, Inc.
Vincent E. Piacenti
President

Jacobs Chuck Manufacturing
Company
C. Michael Heath
President

Jacobs Vehicle Systems, Inc.
Gary A. Masse
President

Jennings Technology
Company
John P. Williamson
President

Joslyn Hi-Voltage Company
James F. Domo
President

Joslyn Manufacturing
Company
Joseph A. Hahn
President

Joslyn Sunbank Company
Donald G. McClintock, Jr.
President

Matco Tools Corporation
Thomas N. Willis
President

M&M Precision Systems
Corporation
Gerald W. Blankenship
President

Namco Controls Corporation
Robert E. Joyce
President

Pacific Scientific Automation
Technology Group
William T. Fejes, Jr.
President

Pacific Scientific Company
Fisher Pierce Division
Steven L. Breitzka
President

Pacific Scientific Company
Instruments Division
Simon R. Appleby
President

Pacific Scientific Energetic
Materials Company
Thomas L. Walsh
President

Pacific Scientific Safety &
Aviation Group
Richard G. Knoblock
President

Partlow/West Corporation
Craig B. Purse
President

QualiTROL Corporation
Ronald N. Meyer
President

Veeder-Root Company
Scott G. Clawson
President

SHAREHOLDERS’ INFORMATION

Auditors
Arthur Andersen LLP
Baltimore, MD

Shareholders’ Information
Shareholder requests for information or assistance,
please write or call our corporate ofﬁce.

Danaher Corporation
c/o Investor Relations
1250 24th Street, NW Suite 800
Washington, D.C. 20037
(202) 828-0850

Internet Address
www.danaher.com

Stock Listing
Symbol: DHR
New York and Paciﬁc Stock Exchanges

Transfer Agent
SunTrust Bank
Atlanta, Georgia

Form 10-K
A copy of the Annual Report to the Securities and Exchange Commission
on Form 10-K may be obtained by writing to Danaher Corporation.

Market Prices of Common Stock

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

1999

1998

High
55
69
62 5⁄8
54 3⁄8

Low
46 3⁄8
51 3⁄8
47 1⁄2
42 3⁄4

High
38 3⁄32
38 7⁄8
45 3⁄4
54 5⁄16

Low
29 1⁄2
34 25⁄32
30
29 3⁄8

High and low per share data are as quoted on the New York Stock Exchange.

Danaher Corporation
1250 24th Street, NW
Suite 800
Washington, D.C. 20037
202-828-0850