Danaher Annual Report 2002

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FY2002 Annual Report · Danaher

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DANAHER

2002 ANNUAL REPORT

R e l e n t l e s s l y

L i s t e n . F o c u s . I m p r o v e . G r o w .

DANAHER
Danaher, a leading industrial company, designs, manufactures, and markets

innovative products, services and technologies with strong brand names and

significant market positions. Driven by strong core values and a foundation

provided by the Danaher Business System, Danaher’s associates are pursuing

a focused strategy aimed at creating a premier global enterprise.

FINANCIAL OPERATING HIGHLIGHTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND NUMBER OF ASSOCIATES)

Year ended December 31

Sales

Operating Profit

Net earnings before accounting change

and tax reserve reduction

Net earnings

Earnings per share before accounting change

and tax reserve reduction

Earnings per share

Operating cash flow

Capital expenditures

Free cash flow

2002

2001

$4,577,232

$3,782,444

$ 701,122

$ 502,011

$ 434,141

$ 297,665

$ 290,391

$ 297,665

$ 2.79

$ 2.01

$ 1.88

$ 2.01

$ 710,347

$ 608,471

$ 65,430

$ 84,457

(operating cash flow less capital expenditures)

$ 644,917

$ 524,014

Number of associates (permanent and temporary)

29,000

23,000

Total assets

Total debt

Stockholders’ equity

Total debt as a percent of total capitalization

Return on equity before accounting change

and tax reserve reduction

$6,029,145

$4,820,483

$1,309,964

$1,191,689

$3,009,599

$2,228,586

30.3%

34.8%

13.8%

13.4%

YEAR-END MARKET PRICE OF STOCK
(in dollars)

$54.31

$48.25

$68.38

$60.31

$65.70

TOOLS AND
COMPONENTS

75+% OF REVENUES
FROM 5 STRATEGIC PLATFORMS

Motion

Environmental

Electronic
Test

Mechanics
Hand Tools

Product
ID

Focused
Niche Businesses

PROCESS/
ENVIRONMENTAL
CONTROLS

2099 Pennsylvania Avenue NW
Washington, D.C. 20006

202.828.0850
www.Danaher.com

D A N A H E R AT- A - G L A N C E

Fluke Corporation is a world leader in the manufacture, dis-
tribution and service of electronic test tools and software. From
industrial electronic installation, maintenance and service, to
precision measurement and quality control, Fluke tools help
keep business and industry around the globe up and running.

Fluke Networks is a leading provider of innovative solutions
for ensuring data communications and Internet uptime. Fluke
Networks products combine speed, accuracy and ease of
use for maximizing network performance.

Hach/Lange is a worldwide market leader in analytical instru-
mentation for water quality and applications. Hach/Lange
provides advanced analytical systems and technical support
for water quality testing with solutions for the lab, plant,
and field.

ELECTRONIC TEST

ENVIRONMENTAL

KEY BRANDS

KEY CUSTOMERS/VERTICAL MARKETS

Fluke, Meterman,
Fluke Biomedical, Raytek

Technicians, Engineers, Metrologists, Commercial
and Residential Electricians

Fluke Networks, OptiView,
MicroTools,OmniScanner, DSP

Network Engineers and Technicians, Network Installation and
Maintenance Professionals, Telecommunication Technicians

Hach, Lange, Orbisphere, OTT,
McCrometer, Pacific Scientific

Drinking Water Facilities, Waste Water Plants, Pharmaceuticals,
Environmental Monitoring Agencies

Gilbarco Veeder-Root enjoys a leading position providing solu-
tions and technologies that provide convenience, control, and
environmental integrity for retail fueling and adjacent markets.

Gilbarco, Veeder-Root,
Red Jacket, Gasboy

Major Oil Companies, Convenience Stores, Retail Fueling
Franchises, Commercial Fueling Operators

MOTION

Danaher Motion is changing the way things move through
innovation in flexibility, precision, efficiency, and reliability for
applications as diverse as robotics, wheelchairs, lift trucks,
electric vehicles, and packaging machines.

Kollmorgen, Pacific Scientific,
Thomson, Superior Electric,
Portescap, Dover

Factory Automation, Medical Equipment, Aerospace
and Defense, Electronic Vehicles, Lift Trucks, Health and
Fitness Machines

PRODUCT
IDENTIFICATION

The output of our product identification technology can
be seen every day, from the lot code on a pill bottle to the
expiration date on a beverage can. Videojet technology
applies codes to more than one trillion products each
year worldwide.

Videojet, Willett, Marsh

Consumer Packaged Goods, Pharmaceuticals, Automotive,
Aerospace, Building Materials

MECHANICS
HAND TOOLS

Danaher Tool Group and Matco enjoy a leading share position
in the billion dollar U.S. mechanics hand tool market. Danaher
is committed to deliver customer-driven innovation with new
products that improve safety, strength, speed and access.

Sears Craftsman®,
Armstrong, Matco,
AllenTM, KD-Tools, Holo-Krome,
NAPA®, SATA

Sears, Professional Automotive Mechanics, NAPA,
Industrial Maintenance and Repair

FOCUSED NICHE BUSINESSES

Aerospace and Defense
Industrial Control
Power Quality
Delta Consolidated Industries

Hennessy Industries
Jacobs Chuck Manufacturing Company
Jacobs Vehicle Systems
Joslyn Manufacturing Company

5.00

3.75

2.50

1.25

800

600

400

200

3.00

2.25

1.50

0.75

800

600

400

200

Danaher 2002 Form 10-K

SALES
(dollars in billions)

$3.05

$3.20

$3.78

$4.58

OPERATING PROFIT
(dollars in millions)

$384

$458

$552

$502

$701

11% compounded
annual growth rate

SHAREHOLDER INFORMATION

www.Danaher.com

ANNUAL MEETING

ACCOUNT QUESTIONS

Our transfer agent can help you with a variety
of shareholder related services including:

• Change of address

• Lost stock certificates

Danaher’s annual shareholder meeting will be
held on May 6, 2003 in Washington, D.C.
Shareholders who would like to attend the
meeting should register with Investor Relations
by calling 202-828-0850 or via e-mail at
ir@Danaher.com.

• Transfer of stock to another person

AUDITORS

• Additional administrative services

Ernst & Young LLP
Baltimore, Maryland

16% compounded
annual growth rate

EARNINGS PER SHARE*
(in dollars)
$2.23

$1.79

$2.01

$2.79

$1.33

20% compounded
annual growth rate

*before effect of accounting
change and reduction of income
tax reserves related to previously
discontinued operations.

OPERATING CASH FLOW
(dollars in millions)

$353

$419

$512

$608

$710

19% compounded
annual growth rate

STOCK LISTING

Symbol: DHR
New York and Pacific Stock Exchanges

CONTACTING OUR TRANSFER AGENT

Sun Trust Bank
Stock Transfer Department
Mail Code 528
P.O. Box 4625
Atlanta, Georgia 30302
Toll Free: 800-568-3476
Outside of the U.S.: 404-588-7815
Fax: 404-332-3875

INVESTOR RELATIONS

This annual report, along with a variety of
other financial materials, can be viewed at
www.Danaher.com.

Additional inquiries may be directed to the
Danaher Investor Relations Group at:

Danaher Corporation
2099 Pennsylvania Avenue NW
Washington, D.C. 20006-1813
Phone: 202-828-0850
Fax: 202-828-0860
Email: ir@Danaher.com

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DEAR SHAREHOLDERS:

WE ARE PLEASED TO REPORT RECORD PERFORMANCE IN SALES, EARNINGS BEFORE ACCOUNTING

CHANGES, AND OPERATING CASH FLOW FOR 2002. WE DELIVERED THESE RESULTS AGAINST THE

BACKDROP OF A VERY CHALLENGING OPERATING ENVIRONMENT MARKED BY WEAKNESS IN THE

WORLDWIDE ECONOMY AND RISING GEOPOLITICAL UNCERTAINTIES THROUGHOUT THE YEAR.

The Danaher team stayed focused on both our cus-
tomers and our performance. Key highlights include:

• Revenues increased 21% v. 2001 to $4.6 billion –
putting our annualized run-rate above $5 billion.

• Earnings per share, before the effect of accounting
changes and certain tax related credits, rose to $2.79.
And just as in 2001, earnings grew amidst the ongoing
industrial recession and technology depression.

• Operating cash flow grew 17% to $710 million –

our best year ever.

• Free cash flow, defined as operating cash flow less

purchases of property, plant and equipment,
increased 23% to $645 million – the eleventh year
in a row in which our free cash flow exceeded our
net earnings.

• An exciting, new fifth strategic platform, Product
Identification, was constructed with the Videojet
and Willett transactions.

• Danaher stock appreciated 9% – outdistancing

peers and broader market indices.

DBS
We have dedicated several pages of this annual report
to a detailed description of the Danaher Business
System (DBS) that we hope you find insightful for
several reasons. First, DBS has been – and remains –
the foundation of our performance, and we’re hopeful
a deeper understanding of DBS will help you under-
stand the strength of our company more fully. Second,
“what is DBS?” remains a frequent question among
shareholders who, especially in the current environment,
have an interest in understanding our operating model
in detail. Third, as I mentioned a year ago, we are
extending the traditional reach of DBS beyond manu-
facturing to include non-manufacturing functions,
particularly those related to innovation and growth,
and we want to update you on our early progress.

I often think that “what is DBS?” is a Rorschach-
like question when asked of those familiar with our
company, and I am always fascinated by the answers.
For me, the answer has always been simple: “it’s who
we are and how we do what we do.”

DBS has evolved since its beginnings in the late

1980s to become the comprehensive operating and
management system we use rigorously in each of our
businesses in pursuit of our quality, delivery, cost,
and innovation (QDCI) goals. The new DBS image
found on pages 6 and 7 in this report details the key
elements of DBS.

To me, to define DBS as merely a set of tools and

processes only answers part of the question “what is
DBS?” and omits the other differentiating aspect of our
organization, our core values. The concept of kaizen is
a great example. Kaizen, the Japanese word for con-
tinuous improvement, is most literally translated as
“continuity and change for the better” and is the heart
of the Toyota Production System. Once just a tool in the
DBS toolbox, kaizen has become a fundamental part
of Danaher’s culture and one of our five core values.
No matter how well we perform, we know we can do
better and we look to do so tomorrow.

In an environment in which investors are increas-
ingly interested in the true sustainability of companies’
operating models and cultures, we are fortunate to be
fifteen years into our efforts to build DBS. We were
committed to DBS years before others cared about such
concepts. And our continuously increasing commitment
to the same values and concepts comes not from the
greater interest shareholders have today but rather from
the deep understanding we have of the power of DBS
to create successes in our organization, an understand-
ing we’ve built over many years.

In 2002 we intensified our efforts to take DBS into

non-manufacturing functions, and enjoyed some early
successes. We held scores of transactional process
improvement (TPI) events to improve administrative
functions. These TPI events drove many working capi-
tal improvements in 2002, which contributed significantly
to our record cash flow performance.

We added several new tools to DBS specifically

intended to improve our growth and innovation skills.
Resources were added to the DBS Office to support
these efforts and the results are encouraging. We also
increased our funding of corporate breakthroughs, those
organic growth opportunities with at least $30 million
of annualized revenue potential within three to five
years and we now have 22 funded projects with over
$600 million of growth potential.

We are confident that you will find this snapshot of
DBS useful in better understanding our company. I use
the word snapshot intentionally, because in the spirit
of kaizen, DBS will be different a year from now. The
bedrock elements will be the same (continuity) but we
know we have countless improvement opportunities
(change for the better) that will be realized in the coming
year, and in years to come.

BUSINESS PORTFOLIO
Our results in 2002 were also driven by the quality
of Danaher’s business portfolio. Our five strategic
platforms – global businesses with scale and leadership
positions in attractive markets – now account for over
75% of Danaher’s revenues. The construction of these
strategic platforms over the past five years has been a
conscious effort to provide our larger businesses the scale
and leading positions needed for outperformance in an
increasingly competitive global marketplace. Our focused
niche businesses also make important contributions, gen-
erating positive returns through competitive advantages
in their respective markets, and providing important
career development assignments for Danaher leaders.

Environmental: Hach/Lange strengthened its worldwide
leadership position for analytical instrumentation used
in water quality applications in 2002. Hach/Lange con-
tinues to play a key role maintaining the safety of our
public water supplies, safety we no longer take for
granted. Hach/Lange posted positive organic growth in
the year and demonstrated again the relative resiliency
of its business in soft economic conditions. The Viridor
acquisition brought several key technologies especially in
the area of ultrapure instrumentation where Orbisphere
is a worldwide leader. Orbisphere ultrapure instrumen-
tation assures quality and purity in the production of
food and beverages. Gilbarco, acquired in February, was
integrated with Veeder-Root to create a global leader in
environmental instrumentation and retail automation
products and services for the retail petroleum market.
Early integration successes resulted in share gains
against a backdrop of weak demand due to global
uncertainties and higher oil prices.

Electronic Test: Fluke, a leading global brand in hand-
held test instrumentation, gained momentum throughout
the year with new product launches and creative mar-
keting programs. Fluke’s growth breakthrough initiative
in the electrical market drove double-digit growth as we
progress well toward our three-year goal of $30 million
of growth in that market. Acquired in August, Raytek
enhanced Fluke’s product portfolio with its core non-
contact infrared temperature technology. Raytek infrared
products complement current Fluke products in com-
mercial and industrial applications where only non-
contact temperature readings can be taken – giving
Fluke a leading global position in this new product
category. Fluke Networks, while down for the year due
to the sluggish information technology spending envi-
ronment, gained market share due to the introduction of
several unique products, including the OptiView Wireless

and Workgroup Analyzers, LinkRunner, WaveRunner
and Optifiber, all key products for the enterprise
network engineer.

Motion: The integration of our precision motion busi-
nesses under the Danaher Motion banner continued with
design wins and new distribution partners providing evi-
dence of the strength of the combined Pacific Scientific,
Kollmorgen, API and Warner operations. The economic
downturn affected us most dramatically in Motion so
we were pleased with the stronger organic growth rates
achieved during the second half of 2002. We are funding
more growth breakthroughs in Motion than in any other
platform. Our precision motor sales to Otis in conjunction
with their Gen2 elevator enjoyed double-digit growth.
As electrical lift truck manufacturers transition to more
energy-efficient motor and drive solutions, we expect
to win the majority of new designs which, in turn, are
expected to generate in excess of $100 million in rev-
enues by 2005. The addition of Thomson, a U.S. leader
in precision mechanical devices, strengthens our system
offering for our OEM customers while providing signifi-
cant strength in the North American distribution channel.

Hand Tools: We enjoyed 2% growth in Hand Tools for
the year due primarily to the superior performance
turned in by Matco in mobile distribution and by our
Professional Tool Division and its Armstrong brand in
industrial distribution. New products, such as Hi-Vis
sockets and the Next Generation Ratcheting System,
helped us mitigate the soft retail environment in 2002.
We are excited about our agreement with Sears at year-
end whereby we obtained exclusive rights to take the
Craftsman brand into industrial, electrical and construction
channels. This agreement gives us additional growth
opportunities for 2003 and beyond.

Product Identification: Videojet joined Danaher last
February and is the cornerstone of our newest platform:
Product Identification. Videojet, a leading worldwide
brand for marking variable product information across
a broad range of consumer and industrial applications,
including the pharmaceutical and food and beverage
industries, saw a return to sales growth as the company
refocused on core customers while aggressively imple-
menting DBS across its operations. The addition of
Willett in January 2003 raised platform revenues in
excess of $400 million and, more importantly, dramat-
ically improved our reach into the rapidly-growing
markets of Asia, Latin America and Eastern Europe.

STRATEGY AND PROSPECTS
Our annual strategic plan review with each Danaher
business is a key element of DBS. We continue this
discussion throughout the year, continually asking our-
selves, “what game are we playing?” and “how do we
win?” By doing so, we identify and address the issues
and opportunities that face each of our businesses, with
tailored strategies. Our Danaher-wide efforts aimed at
growing our team, evolving DBS and stimulating organic
growth and innovation – with specific attention on these
efforts outside of North America – are integrated with
each business’s strategic plan for maximum focus at the
point of impact. We are excited about the strategic
prospects for each of our businesses and for our cor-
poration as a whole.

However, I characterize our near-term outlook as
cautious. Despite the strong organic growth we enjoyed in
the fourth quarter of 2002, we began 2003 anticipating
a flat global economy unlikely to see a sustained up-tick
in the near future. Accordingly, we are actively pursuing
share gains and investing in our key long-term growth
initiatives while retaining our generally conservative
posture on expenses so as to grow earnings again in
2003 while funding our future. With over $800 million
of cash on the balance sheet at year-end, we remain
well-positioned and committed to an active strategic
acquisition program to complement our organic growth
strategies, but will maintain our financial discipline
along the way.

Our long-term view of Danaher’s future remains

unchanged: our team is confident that the powerful
combination of DBS and our high-quality portfolio of
businesses will create superior value for shareholders
as we continue the journey of becoming a premier
global enterprise.

FINAL THOUGHTS
Many people – Danaher associates, suppliers and
customers – helped deliver the record 2002 perform-
ance presented in this report. I am grateful for their
support and contributions to our collective success. I am
particularly proud of all of the Danaher associates who
worked so tirelessly and diligently throughout the year
with a relentless commitment to DBS. To be their leader
continues to be a humbling experience. Thank you for
your continued support.

Sincerely,

H. Lawrence Culp, Jr.
President and Chief Executive Officer
March 28, 2003

KEY QUESTIONS INVESTORS ARE ASKING
A Q & A w i t h M a n a g e m e n t

Q: HOW HAS DANAHER BEEN ABLE TO OUTPERFORM
DURING THE LAST TWO YEARS OF RECESSION?
A: Larry – Several reasons. First, I give a lot of credit
to the Danaher team who consistently faced reality
and took appropriate action. Remember, we began
our preparation for the downturn back in the summer
of 2000, well ahead of the actual recession. Second,
DBS gives us a powerful framework in which to reduce
costs while investing for share gains and growth. Third,
the quality of the portfolio helped a great deal. Our
Environmental, Electronic Test, Motion, Mechanics
Hand Tools and Product Identification businesses are
global leaders in their respective markets.

Q: HOW IS DANAHER’S APPROACH TO CONTINUOUS
IMPROVEMENT DIFFERENT FROM OTHER COMPANIES?
A: Larry – We’ve been on this journey for quite some
time. The cumulative experience we have in this regard
is invaluable. We know what works and what doesn’t
work. Toyota lets their competitors visit their factories,
I think, because they know it’s very difficult to make up
for lost time when it comes to continuous improvement.

DBS is led from the top of the organization. My
entire senior team is committed to DBS. I teach our
Policy Deployment module as often as I can because
I believe it is a key element of DBS, and because I enjoy
the interaction with new associates engaging DBS for
the first time.

Kaizen is just a set of tools for a lot of companies.

At Danaher, kaizen is no longer a tool, it is a core value.
It’s part of our culture. And you can’t copy culture.

Q: WHAT ARE YOUR PRIORITIES GOING FORWARD?

A: Larry – We’ll continue to evolve DBS toward a
broader definition beyond its manufacturing roots.
We will continue to take full advantage of these eco-
nomic conditions by increasing our investments in
organic growth and acquisitions. Developing our
organization in anticipation of our growth remains a
high priority. And I would like for us to become more
global than we are today with particular emphasis on
our opportunities in China.

Q: WHAT IS A CORPORATE BREAKTHROUGH?

A: Larry – For us, these are our larger organic growth
opportunities – in excess of $30 million of annualized
revenue potential in a three to five year period. We put
particular focus on them so that we properly allocate

H. LAWRENCE CULP, JR.

President and Chief Executive Officer

both capital and talent from across Danaher to maximize
our potential for success. Today, we fund 22 such proj-
ects with over $600 million of growth potential. Not all
of these projects will be successful, but having a portfolio
of such investments underscores how actively we are
funding organic growth during this economic downturn.

Q: WHAT DO YOU SAY TO THOSE WHO BELIEVE
DANAHER IS SIMPLY AN ACQUISITION STORY?

A: Larry – The facts suggest otherwise. The best
example may be my calendar. We spend a tremendous
amount of time on strategy, execution and organization
and talent development during the course of a year,
not just acquisitions. Our free cash flow gives us the
opportunity to consider investments in acquisitions
and fortunately we have been successful in that
regard but to characterize Danaher in that way doesn’t
reconcile with how we run the company.

Q: 2002 WAS THE ELEVENTH YEAR IN A ROW YOUR
FREE CASH FLOW EXCEEDED YOUR NET INCOME. HOW
DOES DANAHER DO IT?
A: Pat – Free cash flow generation is a fundamental
by-product of the Danaher Business System, in partic-
ular the elimination of waste. In balance sheet terms,
waste can appear in the form of excess working capital
or excess fixed capital. We have made a concerted
effort over a long period of time to drive excess work-
ing capital out of the system as well as use our fixed
capital more efficiently. The shift in our business mix
towards our Process/Environmental Controls business-
es, which are substantially less capital intensive than
our Tools and Components businesses, has contrib-
uted to the excess of depreciation costs over capital
expenditures that we have enjoyed in recent years.

Q: WILL FREE CASH FLOW CONTINUE TO EXCEED
NET INCOME IN THE FUTURE?
A: Pat – We expect free cash flow will continue to
exceed net income, although it is likely that the relative
percentage of excess cash flow to net income will
moderate. As the business climate improves, we expect
to grow at higher rates, with working capital reductions,
particularly accounts receivable, contributing less to
free cash flow.

Q: WHAT FINANCIAL CRITERIA DO YOU USE WHEN
LOOKING AT ACQUISITIONS?
A: Pat – Our primary financial criterion in looking at
acquisitions is return on invested capital. Our minimum
hurdle rate target is 10% after tax ROIC. We look to
reach those goals in three years or less for most acqui-
sitions. For acquisitions involving the establishment of
a new platform, the timing of the 10% target threshold
may be set somewhat longer but in no event beyond
five years. Of course, 10% is only a minimum target
and we don’t expect to stop there, either with our new
acquisitions or more mature businesses. While we do
look at EPS accretion as a relevant measure, accretion
alone is a poor substitute for ROIC, particularly in
the current climate of generationally low incremental
borrowing rates.

Q: HOW DID THE 2002 ACQUISITIONS FARE AGAINST
THOSE METRICS?
A: Pat – We are quite pleased with the progress made
to date on the 2002 acquisitions. Gilbarco, our largest
single acquisition in 2002, exited the year at an ROIC
rate approaching our hurdle rate, in spite of a very dif-
ficult market with sales down more than 10% for the
year. Videojet, our newest platform business, exited
the year at an even higher ROIC rate.

PATRICK W. ALLENDER

Executive Vice President,

Chief Financial Officer

and Secretary

W H AT I S T H E D A N A H E R B U S I N E S S S Y S T E M ?

In the mid-1980s, a Danaher division faced with intensifying competition launched an
improvement effort based on the then-new principles of lean manufacturing. The ini-
tiative succeeded beyond anyone’s expectations – reinforcing the division’s industry
leadership as well as spawning the Danaher Business System (DBS). Since this mod-
est beginning, DBS has evolved from a collection of manufacturing improvement tools
into a philosophy, set of values, and series of management processes that collectively
define who we are and how we do what we do.

THE BEST TEAM WINS

TA L E N T D E V E L O P M E N T P R O C E S S

O R G A N I Z AT I O N P L A N N I N G

E X E C U T I V E L E A D E R S H I P T R A I N I N G

E X E C U T I V E C H A M P I O N O R I E N TAT I O N

CUSTOMERS
CUSTOMERS TALK,
WE LISTEN

T O TA L

I N S T R U C T I O N

WE COMPETE FOR SHAR

Fueled by Danaher’s core values, the DBS engine drives the company through
a never-ending cycle of change and improvement: exceptional people develop
outstanding plans and execute them using world-class tools to construct sustain-
able processes, resulting in superior performance. Superior performance and high
expectations attract exceptional people, who continue the cycle. Guiding all efforts
is a simple philosophy rooted in four customer-facing priorities: Quality, Delivery,
Cost, and Innovation.

DANAHER
KAIZEN IS OUR
WAY OF LIFE

INNOVATION DEFINES OUR FUTURE

S T R AT E G I C P L A N N I N G

P O L I C Y D E P L O Y M E N T

VA L U E S T R E A M M A P P I N G

K A I Z E N E V E N T B A S I C S

5 S V I S U A L M A N A G E M E N T

S TA N D A R D W O R K

C O O P E R AT I V E B U S I N E S S P L A N N I N G

VA L U E S E L L I N G

V O I C E O F T H E C U S T O M E R

P R O D U C T L A U N C H

D A N A H E R D E V E L O P M E N T S Y S T E M

S T R AT E G I C S U P P L I E R I N T E G R AT I O N

P R O D U C T I O N P R E PA R AT I O N P R O C E S S

T R A N S A C T I O N A L P R O C E S S I M P R O V E M E N T

P R O B L E M S O LV I N G

VA R I AT I O N R E D U C T I O N K A I Z E N

S I X S I G M A

D E S I G N F O R S I X S I G M A

M E A S U R E M E N T S Y S T E M A N A LY S I S

D B S B O O T C A M P

A C Q U I S I T I O N I N T E G R AT I O N

M O D E L C E L L

S E T U P R E D U C T I O N

D A N A H E R M AT E R I A L S P R O C E S S

P R O D U C T I V E M A I N T E N A N C E

N A L T E C H N I Q U E S

REHOLDERS

T h e D a n a h e r B u s i n e s s S y s t e m i s Who W e A r e a n d
How W e D o W h a t W e D o .

O n t h e f o l l o w i n g p a g e s , t h r e e c a s e s t u d i e s s h o w
D B S i n a c t i o n .

R e l e n t l e s s l y .

Listen. Focus. Improve. Grow.

H o w D o Yo u Ta k e

An Existing Brand And Make It A Leader

I n A N e w M a r k e t ?

Relentlessly Listen To
The Voice Of Your Customer.

Fluke is a world leader in the manufacture,
distribution and service of electronic test
tools and software. Since its founding in
1948, Fluke has helped define and grow a
unique technology market, providing testing
and troubleshooting capabilities for techni-
cians, engineers, metrologists, and computer
network professionals.

While engaged in the strategic planning
process, the Fluke team identified a significant
growth opportunity targeting residential and
commercial contractor electricians. The chan-
nel was a natural extension of the current
industrial product line that includes products
such as clamp meters that safely measure
electrical current in power distribution systems
without having to disconnect the circuit.
Success would require the disciplined focus of
DBS tools for corporate breakthroughs.

Fluke began with the voice of the customer

(VOC) to fully understand the unique needs

of the target market. Using web surveys and
visiting job sites, Fluke captured the spoken
and anticipated customer expectations that
became the foundation for a compelling new
product line to help contract electricians do
their job better.

Within a period of 24 months, the exist-
ing clamp meter product line was revamped
with a new ergonomic design for tight
spaces, facilitating the launch of eight new
products into the channel. High voltage
products, previously used only in Europe,
were also introduced in this new product set
and are exceeding the company’s internal
projections by over 100%.

Through the VOC process, Fluke found
in addition to requiring traditional electrical
tools, the target market needed data-com
tools not available in the electrical channel.
Working with Fluke Networks, a leading
provider of network monitoring technology,

data-com products were introduced under
the Fluke brand – growing the business in
the electrical channel more than 50% in
the first year.

Developing the product line was only the
first step. Using cooperative business planning
(CBP), Fluke partnered with the two largest
electrical wholesalers in the U.S. to help lever-
age Fluke’s new products from a quality,
delivery, and growth perspective. Fluke then
turned to Europe to put CBP processes into
place for Hagemeyer BV, one of the largest
electrical wholesalers in the world. Success
has been reflected in the results with double-
digit increases with CBP partners and nine
percent growth globally since 2002.

Fluke is enjoying above-average growth

and enhanced brand recognition among
electrical contractors worldwide as a result
of relentlessly listening to its customers in
this new market segment.

H o w D o Yo u

Dramatically Change A Market?

Relentlessly FocusOn
Innovative Technologies.

Danaher Motion is changing the way things move, maintaining
a constant emphasis on product improvement and innovative
design. Steeped in the culture of continuous improvement,
Danaher Motion identified a technology conversion that would
significantly impact the global lift truck market.

The technology breakthrough involved the conversion from
direct current power supply to alternate current. This successful
conversion would bring significant advantages such as the
elimination of older higher maintenance brush motor technology
as well as increased battery efficiency extending the uptime of
the lift truck between charges.

The target market was clear: seven global manufacturers
producing 200,000 lift trucks annually. The complexity of the
initiative was daunting – a global effort that would span three
continents, many product lines, and several divisions within
Danaher Motion. OEM expectations included six sigma quality
and world-class on-time delivery.

Policy deployment, a key DBS tool for successfully managing

growth breakthroughs, provided the focus required to align all
of the efforts. Specific breakthrough targets for quality, delivery,
and cost actions were set early in the development process.

A variety of other DBS tools were employed. Standard Work –
the best combination of people and process to maximize perform-
ance with minimum waste – replaced batch assembly production
with single piece flow capability to increase productivity and
capacity, and ensure high levels of product quality. Additional
DBS tools were used to improve the supplier outsourcing process,
identify root causes and solve customer concerns.

The end result for Danaher Motion is a more efficient, more
effective motor technology – one that is meeting the needs of
its customers, and generating a significant revenue opportunity
for Danaher. Danaher Motion has captured significant global
market share in electric lift truck power supply conversion as
this technology has been adopted and now has the potential
for use in other adjacent vehicle markets.

H o w D o Yo u
Make A Great Partnership

E v e n B e t t e r ?

Relentlessly Improve Quality,
Delivery, Cost And Innovation.

Danaher’s Matco Tools is an established
leader in the professional automotive tool
industry, providing quality professional
automotive equipment, tools and toolboxes.
Since 1979, Matco has sold products
directly through a network of independent
franchised mobile distributors. Today,
Matco distributors operate in all 50 states,
the District of Columbia and Puerto Rico.

Quality, delivery, cost and innovation
doesn’t stop at the front door for Matco.
Those same objectives are critical for the
success of Matco’s distributor partners.
A distributor spending time on administra-
tive concerns instead of servicing their
customers is considered non-value added
activity. Using its Matco Distributor Advisory
Council to gather feedback, Matco identi-
fied three areas distributors felt were the

most critical in their relationship with the
company: improved accuracy of ordering
and shipping, reduction or elimination of
backorder time, and improvement in
response time to customers’ questions.

With priorities in place, the Matco team

began applying a number of DBS tools to
improve service levels. Value stream map-
ping identified specific areas of improvement
within the value chain between Matco and
distributors. The team mapped each step,
not just on paper, but physically walked
through the process to understand every
part of the value chain. This rigorous map-
ping identified non-value added activities,
and paved the way for sustainable improve-
ments and innovative solutions.

It was a process of improvement well worth
the effort. Two years ago, shipping accuracy

on orders at Matco was a respectable 95%.
Since applying various DBS tools to the
process, that level of accuracy was 99.85%
at the end of 2002. Prior to this focused
effort, Matco’s fill rate was running between
89% and 90%. In 2001, that rate climbed to
92%, and in 2002 it moved up to 94% – their
best performance to date.

The same positive results have been
achieved in Matco’s four call centers. Two
years ago, Matco’s ability to respond to a
customer’s call within 20 seconds was 65%;
at the end of 2002, that figure stood at 91%.

Matco has used DBS to dramatically
improve customer service and delivery.
Matco has created a competitive advantage
for both itself and its distribution partners
that has fueled above-average growth in
recent years.

D I R E C TO R S

Mortimer M. Caplin

Senior Member
Caplin & Drysdale

Donald J. Ehrlich

Chief Executive Officer
Schwab Corporation

Mitchell P. Rales

Chairman of the Executive Committee
Danaher Corporation

Alan G. Spoon

Managing General Partner
Polaris Venture Partners

H. Lawrence Culp, Jr.

President and Chief Executive Officer
Danaher Corporation

Walter G. Lohr, Jr.

Steven M. Rales

Partner
Hogan & Hartson

Chairman of the Board
Danaher Corporation

A. Emmet Stephenson, Jr.

Chairman of the Board
StarTek, Inc.

E X E C U T I V E O F F I C E R S

C O R P O R AT E O F F I C E R S

H. Lawrence Culp, Jr.

Daniel L. Comas

Thomas P. Joyce

President and Chief Executive Officer

Vice President – Corporate Development

Vice President and Group Executive

Patrick W. Allender

Executive Vice President, Chief
Financial Officer and Secretary

Philip W. Knisely

Executive Vice President

Steven E. Simms

Executive Vice President

William J. Butler

Group Executive and Vice President –
Danaher Business System

James H. Ditkoff

Vice President – Finance & Tax

Dennis A. Longo

Vice President – Human Resources

James A. Lico

Vice President and Group Executive

Jeffrey A. Svoboda

Vice President and Group Executive

Robert S. Lutz

Donald E. Doles

Vice President – Chief Accounting Officer

Vice President – Corporate Procurement

Christopher C. McMahon
Vice President – Controller

Daniel A. Pryor

Vice President – Strategic Development

Frank T. McFaden

Vice President – Treasurer

Frank Anders Wilson

Vice President – Investor Relations

M A J O R O P E R AT I N G C O M PA N Y P R E S I D E N T S

PROCESS / ENVIRONMENTAL CONTROLS

TOOLS AND COMPONENTS

M O T I O N

E L E C T R O N I C T E S T

Industrial Control

Danaher Precision Systems

Fluke

Jeffrey A. Beck

James A. Lico

General Purpose Systems

John S. Stroup

Fluke Networks
Chris L. Odell

M E C H A N I C S
H A N D TO O L S

F O C U S E D N I C H E
B U S I N E S S E S

Danaher Tool Group
Professional Tools Division

Jake R. Nichol

Danaher Tool Group Special
Markets Division

Thomas R. Sulentic

Matco Tools Corporation

Thomas N. Willis

Delta Consolidated Industries

Thomas N. Willis

Hennessy Industries, Inc.
Vincent E. Piacenti

Jacobs Chuck
Manufacturing Company
Vincent E. Piacenti

Jacobs Vehicle Systems
Brian E. Burnett

Joslyn Manufacturing Company

Michael J. Gallant

Danaher Industrial
Controls Group

Lawrence D. Kingsley

Gems Sensors

Steven E. Breitzka

Power Quality

Danaher Power Solutions

Kurt F. Gallo

Jennings Technology Company

Steven J. Randazzo

P R O D U C T
I D E N T I F I C AT I O N

Videojet Technologies, Inc.

Craig B. Purse

F O C U S E D N I C H E
B U S I N E S S E S

Joslyn Hi-Voltage Company

Robert E. Joyce

QualiTROL Corporation

Ronald N. Meyer

Aerospace And Defense

Kollmorgen Artus
Robert Perrin

Kollmorgen
Electro-Optical Division

H. Kenyon Bixby

Pacific Scientific Energetic
Materials Company
Thomas L. Walsh

Pacific Scientific Safety &
Aviation Group

Richard G. Knoblock

Linear Motion Systems

Gary A. Masse

Specialty Motors

William T. Fejes, Jr.

E N V I R O N M E N TA L

Hach/Lange

Thomas P. Joyce, Jr.

Gilbarco Veeder-Root
Scott G. Clawson

McCrometer

Kerry F. McCall

Orbisphere

Yves Ducommun

Pacific Scientific
Instruments Company
Simon R. Appleby

D A N A H E R AT- A - G L A N C E

ELECTRONIC TEST

ENVIRONMENTAL

KEY BRANDS

KEY CUSTOMERS/VERTICAL MARKETS

Fluke, Meterman,
Fluke Biomedical, Raytek

Technicians, Engineers, Metrologists, Commercial
and Residential Electricians

Fluke Networks, OptiView,
MicroTools,OmniScanner, DSP

Network Engineers and Technicians, Network Installation and
Maintenance Professionals, Telecommunication Technicians

Hach, Lange, Orbisphere, OTT,
McCrometer, Pacific Scientific

Drinking Water Facilities, Waste Water Plants, Pharmaceuticals,
Environmental Monitoring Agencies

Gilbarco Veeder-Root enjoys a leading position providing solu-
tions and technologies that provide convenience, control, and
environmental integrity for retail fueling and adjacent markets.

Gilbarco, Veeder-Root,
Red Jacket, Gasboy

Major Oil Companies, Convenience Stores, Retail Fueling
Franchises, Commercial Fueling Operators

MOTION

Kollmorgen, Pacific Scientific,
Thomson, Superior Electric,
Portescap, Dover

Factory Automation, Medical Equipment, Aerospace
and Defense, Electronic Vehicles, Lift Trucks, Health and
Fitness Machines

PRODUCT
IDENTIFICATION

Videojet, Willett, Marsh

Consumer Packaged Goods, Pharmaceuticals, Automotive,
Aerospace, Building Materials

MECHANICS
HAND TOOLS

Sears Craftsman®,
Armstrong, Matco,
AllenTM, KD-Tools, Holo-Krome,
NAPA®, SATA

Sears, Professional Automotive Mechanics, NAPA,
Industrial Maintenance and Repair

FOCUSED NICHE BUSINESSES

Aerospace and Defense
Industrial Control
Power Quality
Delta Consolidated Industries

Hennessy Industries
Jacobs Chuck Manufacturing Company
Jacobs Vehicle Systems
Joslyn Manufacturing Company

5.00

3.75

2.50

1.25

800

600

400

200

3.00

2.25

1.50

0.75

800

600

400

200

Danaher 2002 Form 10-K

SALES
(dollars in billions)

$3.05

$3.20

$3.78

$4.58

OPERATING PROFIT
(dollars in millions)

$384

$458

$552

$502

$701

11% compounded
annual growth rate

SHAREHOLDER INFORMATION

www.Danaher.com

ANNUAL MEETING

ACCOUNT QUESTIONS

Our transfer agent can help you with a variety
of shareholder related services including:

• Change of address

• Lost stock certificates

• Transfer of stock to another person

AUDITORS

• Additional administrative services

Ernst & Young LLP
Baltimore, Maryland

16% compounded
annual growth rate

EARNINGS PER SHARE*
(in dollars)
$2.23

$1.79

$2.01

$2.79

$1.33

20% compounded
annual growth rate

*before effect of accounting
change and reduction of income
tax reserves related to previously
discontinued operations.

OPERATING CASH FLOW
(dollars in millions)

$353

$419

$512

$608

$710

19% compounded
annual growth rate

STOCK LISTING

Symbol: DHR
New York and Pacific Stock Exchanges

CONTACTING OUR TRANSFER AGENT

Sun Trust Bank
Stock Transfer Department
Mail Code 528
P.O. Box 4625
Atlanta, Georgia 30302
Toll Free: 800-568-3476
Outside of the U.S.: 404-588-7815
Fax: 404-332-3875

INVESTOR RELATIONS

This annual report, along with a variety of
other financial materials, can be viewed at
www.Danaher.com.

Additional inquiries may be directed to the
Danaher Investor Relations Group at:

Danaher Corporation
2099 Pennsylvania Avenue NW
Washington, D.C. 20006-1813
Phone: 202-828-0850
Fax: 202-828-0860
Email: ir@Danaher.com

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DANAHER

2002 ANNUAL REPORT

R e l e n t l e s s l y

L i s t e n . F o c u s . I m p r o v e . G r o w .

DANAHER
Danaher, a leading industrial company, designs, manufactures, and markets

innovative products, services and technologies with strong brand names and

significant market positions. Driven by strong core values and a foundation

provided by the Danaher Business System, Danaher’s associates are pursuing

a focused strategy aimed at creating a premier global enterprise.

FINANCIAL OPERATING HIGHLIGHTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND NUMBER OF ASSOCIATES)

Year ended December 31

Sales

Operating Profit

Net earnings before accounting change

and tax reserve reduction

Net earnings

Earnings per share before accounting change

and tax reserve reduction

Earnings per share

Operating cash flow

Capital expenditures

Free cash flow

2002

2001

$4,577,232

$3,782,444

$ 701,122

$ 502,011

$ 434,141

$ 297,665

$ 290,391

$ 297,665

$ 2.79

$ 2.01

$ 1.88

$ 2.01

$ 710,347

$ 608,471

$ 65,430

$ 84,457

(operating cash flow less capital expenditures)

$ 644,917

$ 524,014

Number of associates (permanent and temporary)

29,000

23,000

Total assets

Total debt

Stockholders’ equity

Total debt as a percent of total capitalization

Return on equity before accounting change

and tax reserve reduction

$6,029,145

$4,820,483

$1,309,964

$1,191,689

$3,009,599

$2,228,586

30.3%

34.8%

13.8%

13.4%

YEAR-END MARKET PRICE OF STOCK
(in dollars)

$54.31

$48.25

$68.38

$60.31

$65.70

TOOLS AND
COMPONENTS

75+% OF REVENUES
FROM 5 STRATEGIC PLATFORMS

Motion

Environmental

Electronic
Test

Mechanics
Hand Tools

Product
ID

Focused
Niche Businesses

PROCESS/
ENVIRONMENTAL
CONTROLS

2099 Pennsylvania Avenue NW
Washington, D.C. 20006

202.828.0850
www.Danaher.com