2099 Pennsylvania Avenue NW, 12th Floor
Washington, DC 20006
T: 202.828.0850
www.danaher.com
D
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Danaher
2006
Annual
Report
Building
Businesses
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At Danaher we build good businesses — businesses
focused on delivering innovative products and solutions
to our customers.
Over the last ten years, Danaher revenues have grown
over four-fold, a result of consistent organic growth cou-
pled with a disciplined acquisition strategy. This success
is also refl ected in Danaher’s share price performance
generating a ten year compounded annual growth rate
of over 20% per year.
Financial Operating Highlights
(dollars in thousands except per share data and number of associates)
Sales
Operating profi t
Net earnings
Earnings per share (diluted)
Operating cash fl ow
Capital expenditures
Free cash fl ow (operating cash fl ow less capital expenditures)
Number of associates
Total assets
Total debt
Stockholders’ equity
Total capitalization (total debt plus stockholders’ equity)
2006
2005
$ 9,596,404
$ 1,517,993
$ 1,122,029
$
3.48
$ 1,547,251
$
137,706
$ 1,409,545
45,000
$ 12,864,151
$ 2,433,716
$ 6,644,660
$ 9,078,376
$ 7,984,704
$ 1,264,668
897,800
$
$
2.76
$ 1,203,801
$
121,206
$ 1,082,595
40,000
$ 9,163,109
$ 1,041,722
$ 5,080,350
$ 6,122,072
Shareholder Information / www.danaher.com
Our transfer agent can help you
with a variety of shareholder related
services including:
— Change of address
— Lost stock certifi cates
— Transfer of stock to another person
— Additional administrative services
Contacting our Transfer Agent
Computershare
PO Box 43078
Providence, RI 02940-3078
Toll Free: 800-568-3476
Outside the US: 312-588-4991
Investor Relations
This annual report along with a variety of
other fi nancial materials can be viewed at
www.danaher.com.
Additional inquiries may be directed to
Investor Relations at:
Danaher Corporation
2099 Pennsylvania Avenue NW, 12th Floor
Washington, DC 20006
Phone: 202.828.0850
Fax: 202.828.0860
Email: ir@danaher.com
Annual Meeting
Danaher’s annual shareholder meeting will
be held on May 15, 2007 in Washington, D.C.
Shareholders who would like to attend the
meeting should register with Investor Rela-
tions by calling 202.828.0850 or via
e-mail at ir@danaher.com.
Auditors
Ernst & Young LLP, Baltimore, Maryland
Stock Listing
Symbol: DHR
New York Stock Exchange
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1
Danaher Ten-Year Shareholder Return | 1997-2006
DHR
S&P 500
600%
500%
400%
300%
200%
100%
0%
-100%
97
98
99
00
01
02
03
04
05
06
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Five-Year Compounded Annual Growth
2
Sales
Operating Income
EPS
Operating Cash Flow
Year End Price
Five-Year Compounded
Annual Growth
Rate 20%
Five-Year Compounded
Annual Growth Rate 25%
(in millions)
(in millions)
Five-Year Compounded
Annual Growth Rate
28% before effect of
accounting change and
reduction of income
tax reserves related to
previously discontinued
operations
Five-Year Compounded
Annual Growth
Rate 20%
(in millions)
Five-Year
Compounded
Annual Growth
Rate 19%
$9,596
$1,518
$3.48
$1,547
$72.44
$7,985
$1,265
$6,889
$1,105
$2.76
$1,204
$55.78
$57.41
$2.30
$1,033
$45.88
$5,294
$846
$862
$4,577
$701
$1.69
$1.39
$710
$32.85
02 03 04 05 06
02 03 04 05 06
02 03 04 05 06
02 03 04 05 06
02 03 04 05 06
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The Danaher Business System drives excep-
tional levels of performance in each of our
businesses by focusing on improving quality,
delivery, cost, and innovation. DBS is a customer-
centric approach enabling continuous
improvement and is further enhanced by an
increasing number of growth breakthrough
initiatives. The following case studies highlight
some of these successes.
3
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4
Network infrastructure is constantly changing to meet the
performance and security demands of today’s advanced
user. The Fluke Networks OptiView Series III Integrated
Network Analyzer gives IT technicians a clear view of
an entire enterprise — providing visibility into every piece
of hardware, application, and connection on a network.
No other portable network infrastructure tool offers this
much vision and all-in-one capability.
Electrical
Communications
Metrology
Industrial
Medical
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In 1998, Fluke was a well-known and
well-respected brand primarily serving
industrial and engineering end users. With
a dedication to innovation, supported by
the Danaher Business System and the
addition of 20 bolt-on acquisitions, it has
grown year after year. Fluke continues to
leverage its powerful global brand, creat-
ing one of the most extensive hand-held
electronic test product offerings available.
As a result, Fluke products now serve
industrial, electrical, communications,
medical, and metrology customers around
the world.
Building Markets
Electronic Test
120 %
Revenues have increased
120% since 1998.
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Building Capacity
Environmental
20 %
According to United Nations,
20% of the world’s population
lacks access to potable
drinking water.
Since 1996, Danaher has been dedi-
cated to improving the quality of water
— one of the world’s most precious
resources. Danaher has created the
world’s leading provider of water
quality analytics and UV disinfection.
With increasing demands for water
quality in North America and Europe
as well as in developing markets such
as China, Eastern Europe and India,
Danaher will continue to evolve and
expand to help meet the world’s future
water quality needs.
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Our Hach/Lange and Trojan UV businesses help countries
and municipalities keep pace with their infrastructure needs
and ensure clean, safe water supplies. As a global leader in
water quality analytics and UV disinfection we provide prod-
ucts ranging from the Hach 1720E turbidimeter addressing
drinking water compliance requirements to ultraviolet systems
that disinfect billions of gallons of water every day.
7
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8
Until a few years ago, all panoramic, full-mouth x-rays used
fi lm technology. Gendex launched the Gendex Orthoralix®
8500 DDE, Digital Panoramic X-Ray System in September
2005 and has helped revolutionize dental imaging by
providing a cost-effective digital solution that is faster, safer,
and more reliable than traditional fi lm.
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Danaher is out to revolutionize dentistry.
Our goal is to become the technology
leader, facilitating a dentist’s ability to
improve the health, beauty, and youthful
appearance of their patients, while
minimizing the time and discomfort of
treatment. Our products drive procedures
that can create results that last a lifetime.
9
Medical Technologies
84
$84 billion spent annually on
dental services in the United
States, per the American Dental
Association.
Building Innovation
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10
Building Assurance
Product Identifi cation
15
15 new product introductions
in 2006.
Date-sensitive products. Brand protec-
tion. Global product tracking. Danaher’s
Product Identifi cation business started
with the acquisition of Videojet in 2002
and since that time has grown into a
global leader in the industry. With the
most comprehensive product offering
in the industry, sales and service cover-
age second to none, and a commitment
to providing innovative solutions for our
customers, Product Identifi cation has
built a business capable of meeting or
exceeding the most demanding marking
and reading requirements.
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Videojet’s new Excel small character continuous ink jet
printer applies variable data, including lot codes and “best if
used by” dates, on a wide variety of products and packag-
ing, helping to assure the consumer that a product is safe
and fresh. Danaher’s broad array of marking and tracking
technologies apply codes to more than one trillion products
each year, addressing a diverse set of customer needs.
11
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12
Leica instruments provide researchers and clinicians the
tools to help search for the presence and sources of cancer.
Through the use of a Leica Confocal SP5 microscope, the
pathologist is able to identify cancer in a mouse’s brain and
observe its response to specifi c new drugs. Seeing
cancerous cells in their molecular form helps researchers
target new therapies for management of the disease.
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13
Medical Technologies
33 %
33% of cancer-related deaths
are preventable through early
diagnosis, according to the
World Health Organization.
Building Hope
Leica is one of the most respected and
recognized professional brands in the
world. With over 100 years of innovative
optical engineering in its history, Leica
has driven the discovery of science from
school settings to leading-edge national
laboratories.
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14
Dear Fellow Shareholder,
I am pleased to report that Danaher delivered
another year of record fi nancial performance
in 2006. Most importantly, we continued to
build our company so that today we have an
even stronger and more competitive portfolio
of businesses — businesses that continue to
grow through the application of the Danaher
Business System (DBS).
2006 Performance
Our 2006 results underscore the strength
and importance of DBS:
— Revenues increased 20% to $9.6 billion,
including core revenue growth of 6.5%.
— Earnings per share grew 26% to $3.48.
— Operating cash fl ow increased 29% to
over $1.5 billion.
— Free cash fl ow (operating cash fl ow less
capital expenditures) grew 30% to more
than $1.4 billion and exceeded net income
for the 15th consecutive year.
— We invested over $2.6 billion in acquisi-
tions with a focus on building our Medical
Technologies platform, which is now
approaching 25% of total revenues and
reported as a segment.
— Key acquisitions were Sybron Dental
Specialties, a global leader in dental
consumables, and Vision Systems Ltd., a
leader in the pathology diagnostics market.
Unless you are new to Danaher, you will
recognize our consistent story. For more
than 20 years, DBS has defi ned Danaher’s
culture and operating model. This distinctive
approach to continuous improvement has
been instrumental in building high-perfor-
mance businesses over time — and it is
what makes Danaher unique. The central
focus of DBS is the customer, and we aim
to anticipate and address their needs for
quality, delivery, cost, and innovation.
Building Businesses
DBS is how we build market leadership
positions in the businesses we acquire.
DBS also provides the means to strengthen
our existing businesses and help them to
satisfy customers, and to compete and grow.
Throughout this annual report, we have
shared with you stories of how we do
just that.
Because “deals” generate publicity, acquisi-
tions tend to overshadow our day-to-day
operations. This is unfortunate given our
long-term approach. The acquisition is just
the beginning of a journey for a company
within the Danaher portfolio, one without a
fi nish line. And in a world where businesses
are increasingly bought just to be sold again,
our approach may seem antiquated. How-
ever, it is one we believe delivers superior
long-term value to shareholders.
One of my favorite stories in 2006 came
from our Fluke business. A key reason core
revenues at Fluke grew at a high single-digit
rate last year is that we have built the lead-
ing share position in portable thermography.
In 2002, we acquired Raytek Corporation,
a manufacturer of non-contact infrared
thermography products used in industrial,
maintenance, and quality-control applica-
tions. The acquisition was a natural extension
for the Fluke brand, but Raytek’s products
tended to be complicated, bulky and expen-
sive for broad commercialization. As a result,
thermography was primarily an outsourced
activity for the industrial maintenance user.
After talking with Fluke customers, we
realized a hand-held thermography product
that was easy to use and less expensive
would have signifi cant market potential as
40% of Fluke customers said they would buy
such a device.
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With this knowledge, Fluke engineers
reduced the size of the Raytek product and
gave it the design, durability, and cost-effec-
tiveness that are Fluke’s hallmark. We then
applied the full DBS toolkit to get production
time and product cost down to levels that
would enable broad commercialization.
As a result, Fluke introduced the Ti30
hand-held thermal imager in 2005 and the
Ti20 in 2006. These products have been
extremely well received because they
address the previous objections of “diffi cult
to use” and “expensive.” Fluke now holds the
leading market share position at its price
point, and the year-over-year growth rate
for these products was 96% in 2006. There
are many other stories like this within
Danaher businesses.
15
Building for Tomorrow
Danaher also continues to invest in our
people to build good businesses. Through
DBS training, tools and processes, our as-
sociates are the key to the achievement of
our business objectives. Today, our more
than 45,000 associates are building busi-
nesses with global reach and market-leading
capabilities to meet the current and future
needs of our customers. We are proud of our
performance in 2006 but remain focused on
continuing to improve our businesses in the
future.
We are confi dent that we have the right
initiatives, the right culture and the right
leadership for continued growth and value
creation for our customers and for our
shareholders. With a long-term view of
building strong businesses, we believe we
are well positioned to continue our journey
to become a premier global enterprise.
We are grateful for your continuing support.
Sincerely,
H. Lawrence Culp, Jr.
President and Chief Executive Offi cer
March 20, 2007
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Segments
Professional
Instrumentation
16
Environmental
Hach/Lange and Hach Ultra Analytics provide advanced analytical systems and solutions
for laboratory, industrial and fi eld applications. Trojan UV is a world leader in ultraviolet water
disinfection systems.
Gilbarco Veeder-Root is a leading global provider of solutions and technologies that combine
convenience, control and environmental integrity for retail fueling and adjacent markets.
Electronic Test
Fluke Corporation is a world leader in the manufacture, distribution 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 provides innovative solutions for the testing, monitoring and analysis of
enterprise and telecommunication networks. The company’s comprehensive line of Network
SuperVision SolutionsTM provides professionals with speed, accuracy and ease of use to help
optimize network performance.
Medical
Technologies
Danaher is a global leader in dental technologies and consumables.
Kavo is a leading manufacturer of precision dental hand pieces, treatment units, diagnostic
systems, laboratory equipment and digital imaging dental products. Sybron Dental Specialties
is a leading manufacturer of dental consumables and small equipment serving the professional
dental market globally.
Radiometer is a leading provider of diagnostic equipment focused on critical care applications
for the measurement of blood gases in hospitals’ central labs as well as point-of-care locations.
Leica Microsystems is a premier global provider of high precision optical instruments, solutions
and related consumables for life sciences and medical applications, including a comprehensive
portfolio of laboratory microscopes, pathology diagnostics products and surgical microscopes.
Industrial
Technologies
Motion
Danaher Motion provides innovative solutions combining fl exibility, precision, effi ciency, and
reliability for applications as diverse as robotics, wheelchairs, lift trucks, electric vehicles and
packaging machines.
Product Identifi cation
Danaher’s printing and marking technologies apply codes to more than one trillion products
each year worldwide. Danaher’s scanning and tracking products currently sort more than half of
all packages shipped in the U.S.
Focused Niche Businesses: Aerospace and Defense, Power Quality, Sensors and Controls.
Tools &
Components
Mechanics’ Hand Tools
Danaher Tool Group and Matco enjoy a leading share position in the U.S. mechanics’ hand tool
market. Danaher is committed to delivering customer-driven innovation with new products that
improve strength, speed and access.
Focused Niche Businesses: Delta Consolidated Industries, Hennessy Industries, Jacobs Chuck
Manufacturing Company, Jacobs Vehicle Systems.
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Businesses / End Markets
Business Highlights*
Hach, Hach/Lange, Hach Ultra Analytics, Trojan UV
(Municipal Drinking Water Facilities, Municipal Waste
Water Plants, Industrial Plants, Environmental Moni-
toring and Regulatory Agencies)
Gilbarco Veeder-Root
(Major Oil Companies, Convenience Stores, Retail
Fueling Franchises, Commercial Fueling, Major
Retailers and Supermarkets)
Fluke, Raytek, Fluke Biomedical
(Technicians, Electricians, Engineers, Metrologists,
Commercial and Residential Electricians)
Fluke Networks, Visual Networks
(CIOs, CTOs, Network Engineers and Technicians,
Network Installation and Maintenance Profession-
als, Telecommunications Engineers and Managers,
Telecommunications Technicians)
Professional Instrumentation
2006 core revenue growth for the environmental platform was up 8%, driven by
solid demand across the businesses.
17
Both Hach/Lange and Trojan UV captured signifi cant growth opportunities in
developing markets, with particular success in China, India and Eastern Europe.
Our Gilbarco Veeder-Root business continued to capitalize on environmental
regulations in both the US and the UK with shipments of dispensers equipped
with vapor recovery technology, contributing to high single-digit core revenue
growth in 2006.
Electronic Test delivered core revenue growth of 7% in 2006.
Fluke core revenues grew at a high single-digit rate, a result of continued demand
for thermography and temperature products.
New products were again a key contributor to growth in our Fluke Networks and
Fluke Biomedical businesses with more than 30 products introduced in 2006.
KaVo, Gendex, Dexis, Pelton & Crane, Ormco,
Kerr, ISI
(Dental Professionals)
Medical Technologies
Medical Technologies represents the newest reporting segment. Core revenues in
this segment were up 8.5% for the year.
Radiometer
(Physicians, Hospitals, Point-of-Care Centers)
Leica Microsystems, Vision Systems
(Research Institutions, Pathology Labs, Physicians
and Technicians)
The acquisition of Sybron Dental Specialties in May of 2006 expanded our dental
offering to include dental consumables. Kerr and Ormco, both well-respected
brands, join our leading global position in dental technologies. Core revenues
across our dental business were up at a high single-digit rate for the year.
The acquisition of Vision Systems, in December 2006, further enhanced Leica
Microsystem’s position in pathology diagnostics, providing high growth equipment
and consumables critical to the pathology lab.
Kollmorgen, Pacifi c Scientifi c,
Thomson, Dover, Portescap
(Factory Automation, Medical, Health & Fitness, Fac-
tory and Personal Mobility, Aerospace and Defense)
Videojet, Willett, Accu-Sort, LINX
(Food and Beverage, Pharmaceutical, Retail Distribu-
tion, Mail and Parcel Services)
Industrial Technologies
Danaher Motion grew core revenues 5% and delivered more than 100 basis
points of operating margin improvement. Solid low teen lift truck revenue
growth coupled with strength in China, up over 300%, were contributors to
this performance.
Product Identifi cation core revenues grew 2.5% in 2006 and core marking
revenues grew at a mid-single digit rate fueled by 15 new product launches and
geographic strength in Eastern Europe and Latin America. Key technologies
including Thermal Transfer Overprint (TTO) contributed to this performance.
Sears Craftsman®, Armstrong, Matco, Allen, KD-
Tools, Holo-Krome, NAPA®, SATA, Lowes®
(Sears, Professional Automotive Mechanics, NAPA,
Industrial Manufacturing, Consumer Retail)
Tools and Components
Continued strength from our high-end mobile distribution business, as well as
strength from a number of new products introduced during the year, drove solid
revenue growth of 4.5% in 2006.
*Core growth represents sales from existing businesses which include sales from acquired businesses starting from and after
the fi rst anniversary of the acquisition, but exclude currency effects.
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18
2006 Form 10-K
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Securities And Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
Commission File Number: 1-8089
to
Danaher Corporation
(Exact name of registrant as specified in its charter)
(Mark One)
[ X ]
OR
[
]
Delaware
(State of incorporation)
2099 Pennsylvania Ave. N.W., 12th Floor Washington, D.C.
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: 202-828-0850
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $.01 par Value
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
59-1995548
(I.R.S. Employer Identification number)
20006-1813
(Zip Code)
Name of each Exchange
on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes X
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No X
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by ref-
erence in Part III of this Form 10-K or any amendment to this Form 10-K. X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer X
Non-accelerated filer
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes
No X
As of February 16, 2007, the number of shares of Registrant’s common stock outstanding was 309.1 million. The aggregate
market value of common shares held by non-affiliates of the Registrant on June 30, 2006 was $14.9 billion, based upon the
closing price of the Registrant’s common shares as quoted on the New York Stock Exchange composite tape on such date.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Page
3
10
14
14
14
16
17
18
19
40
41
76
76
76
Information Relating To Forward-Looking Statements
four segments: Professional Instrumentation, Medical Technolo-
gies, Industrial Technologies, and Tools & Components.
3
Certain information included or incorporated by reference in this
Annual Report, in press releases, written statements or other
documents filed with or furnished to the SEC, or in our commu-
nications and discussions through web casts, phone calls, con-
ference calls and other presentations and meetings , may be
deemed to be “forward-looking statements” within the meaning
of the federal securities laws. All statements other than state-
ments of historical fact are statements that could be deemed
forward-looking statements,
including statements regarding:
projections of revenue, margins, expenses, tax provisions (or
reversals of tax provisions), earnings or losses from operations,
cash flows, pension and benefit obligations and funding require-
ments, synergies or other financial items; plans, strategies and
objectives of management for future operations,
including
statements relating to our stock repurchase program, potential
acquisitions and executive compensation; developments,
performance or industry or market rankings relating to products
or services; future economic conditions or performance; the
outcome of outstanding claims or legal proceedings; assump-
tions underlying any of the foregoing; and any other statements
that address activities, events or developments that Danaher
Corporation (“Danaher,”
intends, expects,
projects, believes or anticipates will or may occur in the future.
Forward-looking statements may be characterized by terminol-
ogy such as “believe,” “anticipate,” “should,” “would,” “intend,”
“plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strat-
egy,” and similar expressions. These statements are based on
assumptions and assessments made by our management in
light of their experience and perception of historical trends, cur-
rent conditions, expected future developments and other fac-
tors they believe to be appropriate. These forward-looking
statements are subject to a number of risks and uncertainties,
including but not limited to the risks and uncertainties set forth
under “Item 1A. Risk Factors” in this Annual Report.
“our”)
“we,”
“us,”
Any such forward-looking statements are not guarantees
of future performance and actual results, developments and
business decisions may differ materially from those envisaged
by such forward-looking statements. These forward-looking
statements speak only as of the date of the report, press release,
statement, document, web cast or oral discussion in which they
are made. We do not intend to update any forward-looking state-
ment, all of which are expressly qualified by the foregoing.
Part I
ITEM 1. BUSINESS
General
We derive our sales from the design, manufacture and marketing
of professional, medical, industrial and consumer products, which
are typically characterized by strong brand names, proprietary
technology and major market positions. Our business consists of
We strive to create shareholder value through:
— delivering sales growth, excluding the impact of acquired
businesses, in excess of the overall market growth for our
products and services;
— upper quartile financial performance when compared
against peer companies; and
— upper quartile cash flow generation from operations when
compared against peer companies.
To accomplish these goals, we use a set of tools and processes,
known as the DANAHER BUSINESS SYSTEM (“DBS”), which
are designed to continuously improve business performance in
critical areas of quality, delivery, cost and innovation. We also
acquire businesses that we believe can help us achieve the
objectives described above. We will acquire businesses when
they strategically fit with existing operations or when they are of
such a nature and size as to establish a new strategic line of
business. The extent to which appropriate acquisitions are made
and effectively integrated can affect our overall growth and
operating results.
Danaher Corporation, originally DMG, Inc., was organized in
1969 as a Massachusetts real estate investment trust. In 1978
it was reorganized as a Florida corporation under the name Diver-
sified Mortgage Investors, Inc. (“DMI”) which in a second reorgani-
zation in 1980 became a subsidiary of a newly created holding
company named DMG, Inc. We adopted the name Danaher in
1984 and were reincorporated as a Delaware corporation follow-
ing the 1986 annual meeting of our shareholders.
Operating Segments
Effective as of the date of this Annual Report, we have adopted a
reporting structure of four segments, Professional Instrumenta-
tion, Medical Technologies, Industrial Technologies, and Tools &
Components, rather than the three segments previously used. All
prior periods have been adjusted to reflect these four segments.
The table below describes the percentage of our total
annual revenues attributable to each of the segments over each
of the last three fiscal years:
For the Years Ended December 31
Segment
2006
2005
2004
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
30%
23%
33%
14%
32%
15%
37%
16%
33%
10%
38%
19%
Sales in 2006 by geographic destination were: United States,
51%; Europe, 30%; Asia, 12%; and other regions, 7%. For
additional information regarding our segments and sales by
geography, please refer to Note 15 in the Consolidated
Financial Statements included in this Annual Report.
4
Professional Instrumentation
Businesses in our Professional Instrumentation segment offer
professional and technical customers various products and ser-
vices for use in the performance of their work. Professional
Instrumentation encompasses two strategic lines of business:
environmental and electronic test. Sales for this segment in
2006 by geographic destination were: United States, 47%;
Europe, 30%; Asia, 14%; and other regions, 9%.
E N V I R O N M E N T A L . The environmental businesses serve two
main markets: water quality and retail/commercial petroleum. We
entered the water quality sector in 1996 through the acquisition of
American Sigma and have enhanced our geographical coverage
and product and service breadth through subsequent acquisitions,
including Dr. Lange in 1998, Hach Company in 1999, Viridor
Instrumentation in 2002 and Trojan Technologies Inc. in 2004.
Today, we are a worldwide leader in the water quality instrumenta-
tion market. Our water quality operations provide a wide range of
analytical instruments, related consumables, and associated ser-
vices that detect and measure chemical, physical, and microbio-
logical parameters in drinking water, wastewater, groundwater, and
ultrapure water. We also design, manufacture, and market ultravio-
let disinfection systems. Typical users of these products include
municipal drinking water and wastewater treatment plants, indus-
trial process water and wastewater treatment facilities, and third-
party testing laboratories. Customers in this industry choose
suppliers based on a number of factors including the customer’s
existing supplier relationships, product performance and ease of
use, and the comprehensiveness of the supplier’s product offering.
Our water quality business provides products under a variety of
well-known brands, including HACH, DR. LANGE, HACH ULTRA
ANALYTICS, and TROJAN TECHNOLOGIES. Manufacturing
facilities are located in the United States, Canada, Europe,
and Asia. Sales are generally made through our direct sales
personnel, independent representatives, independent distributors
and e-commerce.
We have participated in the retail/commercial petroleum
market since the mid-1980s through our Veeder-Root busi-
ness, and have enhanced our geographic coverage and product
and service breadth through various acquisitions including
Red Jacket in 2001 and Gilbarco (formerly known as Marconi
Commerce Systems) in 2002. Today, we are a leading world-
wide provider of products and services for the retail/commercial
petroleum market. Through the Gilbarco Veeder-Root busi-
ness, we design, manufacture, and market a wide range of
retail/commercial petroleum products and services, including:
— monitoring and leak detection systems;
— vapor recovery equipment;
— fuel dispensers;
— point-of-sale and merchandising systems;
— submersible turbine pumps; and
— remote monitoring and outsourced fuel management ser-
vices, including compliance services, fuel system mainte-
nance, and inventory planning and supply chain support.
Typical users of these products include independent and company-
owned retail petroleum stations, high-volume retailers, conve-
nience stores, and commercial vehicle fleets. Customers in this
industry choose suppliers based on a number of factors including
product features, performance and functionality and the supplier’s
geographical coverage. We market our retail/commercial petro-
leum products under a variety of brands, including GILBARCO,
VEEDER-ROOT, and RED JACKET. Manufacturing facilities are
located in the United States, Europe, Asia and South America.
Sales are generally made through independent distributors and
our direct sales personnel.
E L E C T R O N I C TE S T . Our electronic test business was created
in 1998 through the acquisition of Fluke Corporation, and has
since been supplemented by the acquisitions of a number of
additional electronic test businesses. These businesses design,
manufacture, and market a variety of compact professional test
tools, as well as calibration equipment, for electrical, industrial,
electronic, and calibration applications. These test products
measure voltage, current, resistance, power quality, frequency,
pressure, temperature and air quality. Typical users of these
products include electrical engineers, electricians, electronic
technicians, medical technicians, and industrial maintenance
professionals. In addition, our Fluke Networks business pro-
vides software and hardware products used for the testing,
monitoring, and analysis of local and wide area (“enterprise”)
networks and the fiber and copper infrastructure of those net-
works. In 2006, Fluke Networks expanded its offerings in the
area of network monitoring and application performance man-
agement solutions through the acquisition of Visual Networks,
Inc. Typical users of these products include computer network
engineers and technicians. Competition in the electronic test
industry is based on a number of factors, including the perfor-
mance, ruggedness, ease of use, ergonomics and aesthetics of
the product.
Our electronic test products are marketed under a variety
of brands,
including FLUKE, FLUKE NETWORKS, VISUAL
NETWORKS, RAYTEK, and FLUKE BIOMEDICAL. Manufac-
turing facilities are located in the United States, Europe, and
Asia. Sales are generally made through our direct sales person-
nel and independent distributors. Both Fluke and Fluke
Networks are leaders in their served market segments.
Medical Technologies
Our Medical Technologies segment offers dentists, other doc-
tors and hospital, research and scientific professionals various
products and services that are used in connection with the
performance of their work. Sales for this segment in 2006 by
geographic destination were: United States, 34%; Europe,
42%; Asia, 16%; and other regions, 8%.
We entered the medical technologies line of business in
2004 through the acquisitions of Kaltenbach & Voigt GmbH &
Co KG (KaVo), the Gendex business of Dentsply International
Inc., and Radiometer A/S. We have subsequently added to the
medical technologies business through various acquisitions,
most notably the acquisitions of Leica Microsystems in 2005
and Sybron Dental Specialties and Vision Systems Limited in
5
2006. The medical technologies businesses serve three main
markets: dental products, critical care diagnostics, and life
sciences instrumentation.
complete line of instruments used in the preparation of tissue
samples for examination by medical and research pathologists.
Our life sciences products include:
D E N T A L P R O D U C T S . We are a leading worldwide provider of
dental products. Through our dental products businesses we
design, manufacture and market a variety of dental products
including:
— air and electric handpieces;
— treatment units;
— digital imaging and other visualization and magnification
systems;
— impression, bonding and restorative materials;
— orthodontic alignment brackets and systems;
— endodontic systems and related consumables; and
— infection control products.
Typical users of these products include dentists, orthodontists,
endodontists, oral surgeons, dental technicians, and other oral
health professionals. Dental professionals choose dental prod-
ucts based on a number of factors, including product perfor-
mance and the product’s capacity to enhance productivity.
Our dental products are marketed primarily under the KAVO,
GENDEX, PELTON & CRANE, DEXIS, ORMCO, KERR and
TOTAL CARE brands. Manufacturing facilities are located in
Europe, the United States, and South America. Sales are gen-
erally made through independent distributors, with the excep-
tion of orthodontic products which are generally sold direct.
C R I T I C A L C A R E D I A G N O S T I C S . Our critical care diagnostics
business was created in 2004 through the acquisition of Radi-
ometer and has since been supplemented by two additional
acquisitions. Our critical care diagnostics business is a leading
worldwide provider of blood gas analysis instruments and
related consumables and services. Sold under the RADIOM-
ETER brand, these instruments are used to measure blood
gases and related critical care parameters. Typical users of Radi-
ometer products include hospital central laboratories, intensive
care units, hospital operating rooms, and hospital emergency
rooms. Customers in this industry select products based on a
number of factors, including the accuracy and speed of the
product, the scope of tests that can be performed and the prod-
uct’s ability to enhance productivity. Manufacturing facilities are
located in Europe and the United States, and sales are made
primarily through our direct sales personnel and through dis-
tributors in some countries.
L I F E S C I E N C E S I N S T R U M E N T A T I O N . Our life sciences instru-
mentation business was created in 2005 through the acquisi-
tion of Leica Microsystems and was expanded in 2006 with the
acquisition of Vision Systems Limited. Our Leica business is a
leading global provider of professional microscopes designed to
manipulate, preserve and capture images of, and enhance the
user’s visualization of, microscopic structures. Our Leica and
Vision businesses are also a leading global provider of pathol-
ogy instrumentation and associated consumables, providing a
— optical and laser scanning microscopes;
— surgical and other stereo microscopes;
— automated specimen preparation instruments and related
reagents; and
— pathology diagnostic tests, including cancer diagnostics.
Typical users of our products include research, medical and sur-
gical professionals operating in research and pathology labora-
tories, academic settings and surgical theaters. Customers in
this industry select products based on a number of factors,
including product performance and ergonomics, the product’s
capacity to enhance productivity and the comprehensiveness of
the related reagent portfolio. Manufacturing facilities are
located in Europe, Australia, Asia and the United States.
We market our products under
the LEICA and VISION
BIOSYSTEMS brands, and sales are made to customers
through a combination of our direct sales personnel, indepen-
dent representatives and independent distributors.
Industrial Technologies
Businesses in our Industrial Technologies segment manufac-
ture products and sub-systems that are typically incorporated by
customers and systems integrators into production and packag-
ing lines and by original equipment manufacturers (OEMs) into
various end-products and systems. Many of the businesses also
provide services to support these products, including helping
customers install and service the products. As of December 31,
2006, our Industrial Technologies segment encompassed two
strategic lines of business, motion and product identification,
and three focused niche businesses, aerospace and defense,
sensors & controls and power quality. Sales for this segment in
2006 by geographic destination were: United States, 52%;
Europe, 33%; Asia, 10%; and other regions, 5%.
M O T I O N . We entered the motion control industry through the
acquisition of Pacific Scientific Company in 1998, and have
subsequently expanded our product and geographic breadth
with additional acquisitions,
including American Precision
Industries, Kollmorgen Corporation and the motion businesses
of Warner Electric Company in 2000, and Thomson Industries
in 2002. We are currently one of the leading worldwide provid-
ers of precision motion control equipment. Our businesses
provide a wide range of products including:
— standard and custom motors;
— drives;
— controls; and
— mechanical components (such as ball screws, linear bear-
ings, clutches/brakes, and linear actuators (which convert
rotational motion to linear motion))
These products are sold in various precision motion markets
such as packaging equipment, medical equipment, robotics,
6
circuit board assembly equipment, elevators, and electric
vehicles (such as lift trucks). Customers are typically systems
integrators who use our products in production and packaging
lines and OEMs that integrate our products into their machines
and systems. Customers in this industry choose suppliers based
on a number of factors, including price, product performance,
the comprehensiveness of the supplier’s product offering and
the geographical coverage offered by the supplier. Our motion
including
products are marketed under a variety of brands,
KOLLMORGEN, THOMSON, DOVER, PORTESCAP and
PACIFIC SCIENTIFIC. Manufacturing facilities are located in
the United States, Europe, Latin America, and Asia. Sales are
generally made through our direct sales personnel and through
independent distributors.
P R O D U C T I D E N T I F I C A T I O N . We entered the product identifi-
cation market through the acquisition of Videojet (formerly
known as Marconi Data Systems) in 2002, and have expanded
our product and geographic coverage through various subse-
quent acquisitions, including the acquisitions of Willett Interna-
tional Limited and Accu-Sort Systems Inc. in 2003 and Linx
Printing Technologies PLC in January 2005. We are a leader in
our served product identification market segments. Our busi-
nesses design, manufacture, and market a variety of equipment
used to print and read bar codes, date codes, lot codes, and
other information on primary and secondary packaging. Our
products are also used in certain high-speed printing applica-
tions. Typical users of these products include food and beverage
manufacturers, pharmaceutical manufacturers, retailers, pack-
age and parcel delivery companies, the United States Postal
Service and commercial printing and mailing operations. Cus-
tomers in this industry choose suppliers based on a number of
factors, including printer speed and accuracy, ease of mainte-
nance and service coverage. Our product identification products
are marketed under a variety of brands, including VIDEOJET,
ACCU-SORT, WILLETT, ZIPHER, ALLTEC and LINX. Manu-
facturing facilities are located in the United States, Europe,
South America, and Asia. Sales are generally made through our
direct sales personnel and independent distributors.
A E R O S P A C E A N D D E F E N S E . Our aerospace and defense busi-
ness designs, manufactures, and markets a variety of aircraft
and defense equipment, including:
— smoke detection and fire suppression systems;
— energetic material systems;
— electronic security systems;
— linear actuators;
— electrical power generation systems; and
— submarine periscopes and related sensors.
These product lines came principally from the acquisitions of
Pacific Scientific in 1998 and Kollmorgen in 2000 and have
been supplemented by several subsequent acquisitions. Typical
users of these products include commercial and business air-
craft manufacturers as well as defense systems integrators and
prime contractors. Customers in this industry choose suppliers
based on a number of factors, including the supplier’s experi-
ence with the particular technology or application in the
aerospace and defense industry, and product reliability. Our
aerospace and defense products are marketed under a
variety of brands,
including the PACIFIC SCIENTIFIC,
SUNBANK, SECURAPLANE, KOLLMORGEN ELECTRO-
OPTICAL, ARTUS, CALZONI and OECO brands. Sales are
generally made through our direct sales personnel.
S E N S O R S & C O N T R O L S . Our sensors & controls products
include instruments that measure and control discrete manu-
facturing variables such as temperature, position, quantity, level,
flow, and time. Users of these products span a wide variety
of manufacturing markets. These products are marketed under
a variety of brands,
including DYNAPAR, HENGSTLER,
PARTLOW, PREDYNE, WEST, NAMCO, GEMS SENSORS,
and SETRA. Sales are generally made through our direct sales
personnel and independent distributors.
P O W E R Q U A L I T Y. Our power quality business serves both the
commercial segment and the electric utility segment. In the
commercial segment, we provide products such as transfer
switches, power distribution units, and surge suppressors. Sold
under the CYBEREX, CURRENT TECHNOLOGY, JOSLYN
and UNITED POWER brands, these products are typically
incorporated into systems used to ensure high-quality, reliable
power in commercial and industrial environments. In the electric
utility segment, our businesses provide high voltage vacuum
components and transformer monitoring instruments marketed
the JOSLYN HI-VOLTAGE, JOSLYN, QUALITROL,
under
JENNINGS, and HATHAWAY brands. Electric utilities use
these products primarily to monitor the status of their transmis-
sion and distribution systems. Sales are generally made through
our direct sales personnel, independent representatives, and
independent distributors.
Manufacturing facilities of our Industrial Technologies
focused niche businesses are located in the United States, Latin
America, Europe, and Asia.
Tools & Components
As of December 31, 2006, our Tools & Components segment
encompassed one strategic line of business, mechanics’ hand
tools, and four focused niche businesses: Delta Consolidated
Industries, Hennessy Industries, Jacobs Chuck Manufacturing
Company and Jacobs Vehicle Systems. Sales for this segment
in 2006 by geographic destination were: United States, 86%;
Europe, 3%; Asia, 6%; and other regions, 5%.
M E C H A N I C S ’ H A N D TO O L S . The mechanics’ hand tools busi-
ness consists of several companies that do business as the
Danaher Tool Group (“DTG”), and Matco Tools (“Matco”). DTG
is one of the largest worldwide producers of general pur-
pose mechanics’ hand tools, primarily ratchets, sockets, and
wrenches, and specialized automotive service tools for the
professional and “do-it-yourself” markets. DTG has been the
principal manufacturer of Sears Holdings Corporation’s
CraftsmanT line of mechanics’ hand tools for over 60 years.
Matco manufactures and distributes professional tools, tool-
boxes and automotive equipment, through independent mobile
distributors, who sell primarily to professional mechanics under
the MATCO brand. Professional and do-it-yourself mechanics
typically select tools based on price, ergonomics, aesthetics
and ruggedness.
We market tool products under our own brand names and
also private-label products for certain customers. The hand
tools that we sell into the industrial and consumer markets are
branded under the ARMSTRONG, ALLEN, GEARWRENCH
and SATA names, while service tools for the automotive markets
are branded under the K-D TOOLS name. Typical users of DTG
products include professional automotive and industrial
mechanics as well as “do-it-yourself” consumers. Manufactur-
ing facilities are located in the United States and Asia. Sales are
generally made through independent distributors and retailers.
D E L T A C O N S O L I D A T E D I N D U S T R I E S . Delta is a leading manu-
facturer of automotive truckboxes and industrial gang boxes,
which it sells under the DELTA and JOBOX brands. These prod-
ucts are used by both commercial users, such as contractors,
and individual consumers. Sales are generally made through
independent distributors and retailers.
H E N N E S S Y I N D U S T R I E S . Hennessy is a leading North Ameri-
can full-line wheel service equipment manufacturer, providing
brake lathes, vehicle lifts, tire changers, wheel balancers, and
wheel weights under the AMMCO, BADA, and COATS brands.
Typical users of these products are automotive tire and repair
shops. Sales are generally made through our direct sales
personnel,
retailers, and original
equipment manufacturers.
independent distributors,
C H U C K
C O M P A N Y. Jacobs
J A C O B S
M A N U F A C T U R I N G
designs, manufactures, and markets chucks and precision tool
and workholders, primarily for the portable power tool industry,
under the JACOBS brand. Founded by the inventor of the three-
jaw drill chuck, Jacobs maintains a worldwide leadership posi-
tion in drill chucks. Customers are primarily major manufacturers
of portable power tools, and sales are typically made through our
direct sales personnel.
J A C O B S VE H I C L E S Y S T E M S ( “J V S ” ) . JVS is a leading world-
wide supplier of supplemental braking systems for commercial
vehicles, selling JAKE BRAKE brand engine retarders for class
6 through 8 vehicles and bleeder and exhaust brakes for class
2 through 7 vehicles. Customers are primarily major manufac-
turers of class 2 through class 8 vehicles, and sales are typically
made through our direct sales personnel.
Manufacturing facilities of our Tools & Components
focused niche businesses are located in the United States
and Asia.
7
The following discussions of Raw Materials, Intellectual
Property, Competition, Seasonal Nature of Business, Backlog,
Employee Relations, Research and Development, Government
Contracts, Regulatory Matters, International Operations, Major
Customersand OtherMattersinclude information common to all
of our segments.
Raw Materials
Our manufacturing operations employ a wide variety of raw
materials, including steel, copper, cast iron, electronic compo-
nents, aluminum, plastics and other petroleum-based products.
We purchase raw materials from a large number of independent
sources around the world. There have been no raw materials
shortages that have had a material adverse impact on our busi-
ness, although market forces during the past two years have
increases in the costs of steel and
caused significant
petroleum-based products, and with respect to the past year,
non-ferrous metals as well. While non-ferrous metals and to
a lesser extent certain types of steel remain subject to supply
constraints, we believe that we will generally be able to obtain
adequate supplies of major raw material requirements or rea-
sonable substitutes at reasonable costs.
trademarks, copyrights,
Intellectual Property
We own numerous patents,
trade
secrets and licenses to intellectual property owned by others.
Although in aggregate our intellectual property is important to
our operations, we do not consider any single patent or trade-
mark to be of material importance to any segment or to the busi-
ness as a whole. From time to time, however, we do engage in
litigation to protect our intellectual property. For a discussion of
risks related to our intellectual property, please refer to “Item 1A.
Risk Factors.” All capitalized brands and product names
throughout this document are trademarks owned by, or licensed
to, Danaher or its subsidiaries.
Competition
Although our businesses generally operate in highly competi-
tive markets, our competitive position cannot be determined
accurately in the aggregate or by segment since our competi-
tors do not offer all of the same product lines or serve all of the
same markets as we do. Because of the diversity of products
sold and the variety of markets served, we encounter a wide vari-
ety of competitors, including well-established regional or spe-
cialized competitors, as well as larger companies or divisions of
larger companies that have greater sales, marketing, research,
and financial resources than we do. The number of competitors
varies by product line. Our management believes that we have
a market leadership position in many of the markets served. Key
competitive factors typically include the specific factors noted
above with respect to each particular business, as well as price,
quality, delivery speed, service and support, innovation, distribu-
tion network, and brand name.
8
Seasonal Nature of Business
General economic conditions have an impact on our business
and financial results, and certain of our businesses experience
seasonal and other trends related to the industries and end-
markets that they serve. For example, European sales are often
weaker in the summer months, medical and capital equipment
sales are often stronger in the fourth calendar quarter, sales to
original equipment manufacturers are often stronger immedi-
ately preceding and following the launch of new products, and
sales to the United States government are often stronger in the
third calendar quarter. However, as a whole, we are not subject
to material seasonality.
Backlog
Backlog is generally not considered a significant factor in our
businesses as relatively short delivery periods and rapid inven-
tory turnover are characteristic of most of our products.
Employee Relations
At December 31, 2006, we employed approximately 45,000
persons, of which approximately 21,000 were employed in the
United States. Of these United States employees, approxi-
mately 2,700 were hourly-rated unionized employees. We also
have government-mandated collective bargaining arrange-
ments or union contracts in other countries. Though we consider
our labor relations to be satisfactory, we are subject to potential
union campaigns, work stoppages, union negotiations and other
potential labor disputes.
Research and Development
The table below describes our research and development
expenditures over each of the last three fiscal years, by segment
and in the aggregate:
For the Years Ended December 31
($ in millions)
Segment
2006
2005
2004
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Total
$ 174
123
139
10
$446
$157
75
135
12
$379
$130
43
112
9
$294
We conduct research and development activities for the pur-
pose of developing new products and services and improving
existing products and services. In particular, we emphasize the
development of new products that are compatible with, and
build upon, our manufacturing and marketing capabilities.
Government Contracts
We have agreements relating to the sale of products to govern-
ment entities, primarily involving products in the aerospace and
identification, water quality and motion
defense, product
businesses. As a result, we are subject to various statutes and
regulations that apply to companies doing business with the
government. The laws governing government contracts differ
from the laws governing private contracts. For example, many
government contracts contain pricing and other terms and con-
ditions that are not applicable to private contracts. Our agree-
ments relating to the sale of products to government entities
may be subject to termination, reduction or modification in the
event of changes in government requirements, reductions in
federal spending and other factors. We are also subject to inves-
tigation and audit for compliance with the requirements govern-
ing government contracts, including requirements related to
procurement integrity, export control, employment practices, the
accuracy of records and the recording of costs. Our failure to
comply with these requirements might result in suspension of
these contracts, criminal or civil sanctions, administrative penal-
ties or suspension or debarment from government contracting
or subcontracting for a period of time. For a further discussion
of risks related to compliance with government contracting
requirements, please refer to “Item 1A. Risk Factors.”
Regulatory Matters
Environmental, Health & Safety
Certain of our operations are subject to environmental laws and
regulations in the jurisdictions in which they operate, which
impose limitations on the discharge of pollutants into the
ground, air and water and establish standards for the genera-
tion, treatment, use, storage and disposal of solid and hazardous
wastes. We must also comply with various health and safety
regulations in both the United States and abroad in connection
with our operations. Compliance with these laws and regula-
tions has not had and, based on current information and the
applicable laws and regulations currently in effect,
is not
expected to have a material adverse effect on our capital expen-
ditures, earnings or competitive position. For a discussion of
risks related to compliance with environmental and health and
safety laws, please refer to “Item 1A. Risk Factors.”
In addition to environmental compliance costs, we from
time to time incur costs related to alleged environmental dam-
age associated with past or current waste disposal practices or
other hazardous materials handling practices. For example, gen-
erators of hazardous substances found in disposal sites at
which environmental problems are alleged to exist, as well as the
owners of those sites and certain other classes of persons, are
subject to claims brought by state and federal regulatory agen-
cies pursuant to statutory authority. We have received notifica-
tion from the U.S. Environmental Protection Agency, and from
state and non-U.S. environmental agencies, that conditions at a
number of sites where we and others disposed of hazardous
wastes require clean-up and other possible remedial action,
including sites where we have been identified as a potentially
responsible party under federal and state environmental laws
9
FDA as medical device manufacturing establishments. The
FDA, as well as our ISO Notified Bodies, regularly inspect our
registered and/or certified facilities.
We sell both Class I and Class II medical devices. A medical
device, whether exempt from, or cleared pursuant to, the pre-
market notification requirements of the FDCA, or cleared pur-
suant to a premarket approval application, is subject to ongoing
regulatory oversight by the FDA to ensure compliance with
regulatory requirements, including, but not limited to, product
labeling requirements and limitations, including those related to
promotion and marketing efforts, current good manufacturing
practices and quality system requirements, record keeping, and
medical device (adverse event) reporting. For a discussion of
risks related to our regulation by the FDA and counterpart agen-
cies of other countries, please refer to “Item 1A. Risk Factors.”
In addition, certain of our products utilize radioactive mate-
rial. We are subject to federal, state and local regulations
governing the management, storage, handling and disposal
of these materials.
Export Compliance
We are required to comply with various export control and
economic sanctions laws, including:
— the International Traffic in Arms Regulations administered
by the U.S. Department of State, Directorate of Defense
Trade Controls, which, among other things, imposes license
requirements on the export from the United States of
defense articles and defense services (which are items
specifically designed or adapted for a military application
and/or listed on the United States Munitions List);
— the Export Administration Regulations administered by the
U.S. Department of Commerce, Bureau of Industry and Secu-
rity, which, among other things, impose licensing requirements
on the export or re-export of certain dual-use goods, technol-
ogy and software (which are items that potentially have both
commercial and military applications); and
— the regulations administered by the U.S. Department of
Treasury, Office of Foreign Assets Control, which imple-
ment economic sanctions imposed against designated
countries, governments and persons based on United
States foreign policy and national security considerations.
Non-United States governments have also implemented similar
export control regulations, which may affect our operations or
transactions subject to their jurisdictions. For a discussion of
risks related to export control and economic sanctions laws,
please refer to “Item 1A. Risk Factors.”
and regulations. We have projects underway at several current
and former manufacturing facilities, in both the United States
and abroad, to investigate and remediate environmental con-
tamination resulting from past operations. We are also from time
to time party to personal injury or other claims brought by private
parties alleging injury due to the presence of or exposure to
hazardous substances.
We have made a provision for environmental remediation
and environmental-related personal injury claims. We generally
make an assessment of the costs involved for our remediation
efforts based on environmental studies as well as our prior
experience with similar sites. If we determine that we have
potential remediation liability for properties currently owned or
previously sold, we accrue the total estimated costs, including
investigation and remediation costs, associated with the site.
We also estimate our exposure for environmental-related per-
sonal injury claims and accrue for this estimated liability as such
claims become known. While we actively pursue appropriate
insurance recoveries as well as appropriate recoveries from
other potentially responsible parties, we do not recognize any
insurance recoveries for environmental liability claims until real-
ization is deemed probable. The ultimate cost of site cleanup is
difficult to predict given the uncertainties of our involvement in
certain sites, uncertainties regarding the extent of the required
cleanup, the availability of alternative cleanup methods, varia-
tions in the interpretation of applicable laws and regulations, the
possibility of insurance recoveries with respect to certain
sites and the fact that imposition of joint and several liability with
right of contribution is possible under the Comprehensive Envi-
ronmental Response, Compensation and Liability Act of 1980
and other environmental
laws and regulations. As such, we
cannot assure that our estimates of environmental liabilities will
not change.
In view of our financial position and reserves for environ-
mental matters and based on current information and the appli-
cable laws and regulations currently in effect, we believe that
our liability related to past or current waste disposal practices
and other hazardous materials handling practices will not have
a material adverse effect on our results of operations, financial
condition or cash flow. For a discussion of risks related to past
or future releases of, or exposures to, hazardous substances,
please refer to “Item 1A. Risk Factors.”
Medical Devices
Certain of our products are medical devices that are subject to
regulation by the United States Food and Drug Administration
(the “FDA”) and by the counterpart agencies of the non-U.S.
countries where our products are sold. Some of the regulatory
requirements of these foreign countries are different than those
applicable in the United States.
Pursuant to the Federal Food, Drug, and Cosmetic Act (the
“FDCA”), the FDA regulates virtually all phases of the manufac-
ture, sale, and distribution of medical devices, including their
introduction into interstate commerce, manufacture, advertis-
ing,
labeling, packaging, marketing, distribution and record
keeping. Pursuant to the FDCA and FDA regulations, certain
facilities of our operating subsidiaries are registered with the
10
International Operations
The table below describes annual net revenue by geographic
destination outside the U.S. as a percentage of total annual net
revenue for each of the last three fiscal years, by segment and
in the aggregate:
Year Ended December 31
Segment
2006
2005
2004
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Total
53%
66%
48%
14%
49%
53%
73%
47%
14%
47%
52%
78%
44%
14%
45%
Our principal markets outside the United States are in Europe
and Asia.
The table below describes long-lived assets located
outside the United States as a percentage of total long-lived
assets in each of the last three fiscal years, by segment and in
the aggregate:
Year Ended December 31
Segment
2006
2005
2004
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Total
43%
55%
23%
6%
42%
41%
87%
18%
6%
42%
42%
91%
10%
5%
37%
For additional information related to revenues and long-lived
assets by country, please refer to Note 15 to the Consolidated
Financial Statements.
Most of our sales in non-U.S. markets are made by our non-
U.S. sales subsidiaries or from manufacturing entities located
outside the United States, though we also make sales outside
the U.S. through various representatives and distributors and
also sell into non-U.S. markets directly from the U.S. In countries
with low sales volumes, we generally make sales through rep-
resentatives and distributors.
Financial information about our international operations is
contained in Note 15 of the Consolidated Financial Statements
included in “Item 8. Financial Statements and Supplementary
Data,” and information about the possible effects of foreign cur-
rency fluctuations on our business is set forth in “Item 7. Man-
agement’s Discussion and Analysis of Financial Condition and
Results of Operations.” For a discussion of risks related to
our non-US operations and foreign currency exchange, please
refer to “Item 1A. Risk Factors.”
Major Customers
We have no customers that accounted for more than 10% of
consolidated sales in 2006, 2005 or 2004.
Other Matters
Our businesses maintain sufficient levels of working capital to
support customer requirements. Our sales and payment terms
are generally similar to those of our competitors.
Available Information
We maintain an internet website at www.danaher.com. We make
available free of charge on the website our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K and amendments to those reports, filed or fur-
nished pursuant to Section 13(a) or 15(d) of the Exchange Act,
as soon as reasonably practicable after filing such material elec-
tronically with, or furnishing such material to, the SEC. Our Inter-
net site and the information contained on or connected to that
site are not incorporated by reference into this Form 10-K.
Corporate Governance Guidelines and
Committee Charters
We have adopted Corporate Governance Guidelines, which
are available in the “Investors” section of our website at
www.danaher.com. The charters of each of the Audit Commit-
tee, the Compensation Committee and the Nominating and Gov-
ernance Committee of the Board of Directors are also available
in the “Investors” section of our website at www.danaher.com.
Stockholders may request a free copy of these committee char-
ters and the Corporate Governance Guidelines from:
Danaher Corporation
Attention: Corporate Secretary
2099 Pennsylvania Avenue, N.W,
12th Floor
Washington, DC 20006
Certifications
We have filed certifications under Rule 13a-14(a) under the
Exchange Act as exhibits to this Annual Report on Form 10-K.
In addition, our President and CEO submitted an annual CEO
Certification to the New York Stock Exchange on May 2, 2006
in accordance with the NYSE listing standards.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties
described below, together with the information included else-
whereinthisAnnualReportonForm10-Kandotherdocuments
wefilewiththeSEC.Therisksanduncertaintiesdescribedbelow
arethosethatwehaveidentifiedasmaterial,butarenottheonly
risksanduncertaintiesfacingus.Ourbusinessisalsosubjectto
generalrisksanduncertaintiesthataffectmanyothercompanies,
suchasoverallU.S.andnon-U.S.economicandindustrycondi-
tions,aglobaleconomicslowdown,geopoliticalevents,changes
inlawsoraccountingrules,fluctuationsininterestrates,terrorism,
internationalconflicts,majorhealthconcerns,naturaldisastersor
other disruptions of expected economic or business conditions.
Additionalrisksanduncertaintiesnotcurrentlyknowntousorthat
wecurrentlybelieveareimmaterialalsomayimpairourbusiness,
includingourresultsofoperations,liquidityandfinancialcondition.
We face intense competition and if we are unable to compete
effectively, we may face decreased demand or price reductions
for our products.
Our businesses operate in industries that are intensely competitive.
Because of the diversity of products we sell and the variety of mar-
kets we serve, we encounter a wide variety of competitors. In order
to compete effectively, we must retain longstanding relationships
with major customers, establish relationships with new customers,
continually develop new products and services designed to main-
tain our leadership position in various product categories and pen-
etrate new markets. Our failure to compete effectively may reduce
our revenues, profitability and cash flow, and pricing pressures may
adversely impact our profitability.
Technologies, product offerings and customer requirements
in many of our markets change rapidly. If we fail to keep up
with these changes, we may not be able to meet our
customers’ needs and demand for our products may decline.
If we pursue technologies that do not become commercially
accepted, customers may not buy our products or use
our services.
Rapid technological change and frequent introductions of new
products and services characterize many of the markets we
serve. Changes in regulations can also impact demand for new
products in our markets. Our failure to successfully embrace
and respond to these changes and developments may reduce
our revenues and cash flow and adversely affect our profitability.
Even if we successfully embrace and respond to these changes
and developments, we may incur substantial costs in doing so,
and our profitability may suffer. In addition, if customers do not
adopt the technologies that we develop or if those technologies
ultimately prove not to be viable, our revenues, cash flow and
profitability may suffer.
Our acquisition of businesses could negatively impact our
profitability and return on invested capital. Conversely, any
inability to consummate acquisitions at our prior rate could
negatively impact our growth rate.
As part of our business strategy we acquire businesses in the
ordinary course, some of which may be material. During 2006
we acquired eleven businesses for an aggregate purchase price
of approximately $2.7 billion (including transaction costs and
net of cash acquired); during 2005 we acquired 13 businesses
for an aggregate purchase price of approximately $885 million
(including transaction costs and net of cash acquired); and
during 2004 we acquired 13 businesses for an aggregate pur-
chase price of approximately $1.6 billion (including transaction
costs and net of cash acquired). Our acquisitions involve a
11
number of risks and financial, managerial and operational
challenges, including the following, any of which could cause
significant operating inefficiencies and adversely affect our
growth and profitability:
— Any acquired business, technology, service or product
could under-perform relative to our expectations and the
price that we paid for it.
— Acquisition-related earnings charges could adversely
impact operating results.
— Acquisitions could place unanticipated demands on our
management, operational resources and financial and
internal control systems.
— We could experience difficulty in integrating personnel,
operations and financial and other systems.
— We may be unable to achieve cost savings anticipated in
connection with the integration of an acquired business.
— We may assume by acquisition unknown liabilities, known
contingent liabilities that become realized, known liabilities
that prove greater than anticipated, or internal control
deficiencies. The realization of any of these liabilities or
deficiencies may increase our expenses and adversely
affect our financial position.
Conversely, we may not be able to consummate acquisitions at
similar rates to the past, which could adversely impact our
growth rate. Our ability to achieve our growth goals depends in
part upon our ability to identify and successfully acquire and
integrate companies and businesses at appropriate prices and
realize anticipated cost savings. In addition, changes in account-
ing or regulatory requirements could also adversely impact our
ability to consummate acquisitions.
The indemnification provisions of acquisition agreements
by which we have acquired companies may not fully protect
us and may result in unexpected liabilities.
Certain of the acquisition agreements by which we have
acquired companies require the former owners to indemnify us
against certain liabilities related to the operation of each of their
companies before we acquired it. In most of these agreements,
however, the liability of the former owners is limited and certain
former owners may not be able to meet their indemnification
responsibilities. We cannot assure that these indemnification
provisions will fully protect us, and as a result we may face
unexpected liabilities that adversely affect our profitability and
financial position.
The resolution of contingent liabilities from businesses
that we have sold could adversely affect our results of
operations and financial condition.
We have retained responsibility for some of the known and
unknown contingent liabilities related to a number of busi-
nesses we have sold, such as lawsuits, product liability claims
and environmental matters, and agreed to indemnify the pur-
chasers of these businesses for certain known and unknown
contingent liabilities. The resolution of these contingencies has
not had a material adverse effect on our results of operations or
12
financial condition but we can not be certain that this favorable
pattern will continue.
trademarks, copyrights,
Our success depends on our ability to maintain and protect
our intellectual property and avoid claims of infringement
or misuse of third party intellectual property.
We own numerous patents,
trade
secrets and licenses to intellectual property owned by others,
which in aggregate are important to our operations. The steps
we have taken to maintain and protect our intellectual property
may not prevent it from being challenged, invalidated or circum-
vented. Unauthorized use of our intellectual property rights
could adversely impact our competitive position and results of
operations. In addition, from time to time in the usual course of
business, we receive notices from third parties regarding intel-
lectual property infringement or misappropriation. In the event
of a successful claim against us, we could lose our rights to
needed technology or be required to pay substantial damages
or license fees with respect to the infringed rights, any of which
could adversely impact our revenues, profitability and cash
flows. Even where we successfully defend against claims of
infringement or misappropriation, we may incur significant costs
which could adversely affect our profitability and cash flows.
We are subject to a variety of litigation in the course of
our business that could adversely affect our results of
operations and financial condition.
We are subject to a variety of litigation incidental to our business,
including claims for damages arising out of the use of our prod-
ucts, claims relating to intellectual property matters and claims
involving employment matters, commercial disputes, environ-
mental matters and acquisition-related matters. Some of these
lawsuits include claims for punitive and consequential as well as
compensatory damages. The defense of these lawsuits may
divert our management’s attention, we may incur significant
expenses in defending these lawsuits, and we may be required
to pay damage awards or settlements or become subject
to equitable remedies that could adversely affect our financial
condition, operations and results of operations. Moreover, any
insurance or indemnification rights that we may have may
be insufficient or unavailable to protect us against potential
loss exposures.
financial condition,
Our operations expose us to the risk of environmental
litigation and violations that could
liabilities, costs,
adversely affect our
results of
operations and reputation.
Certain of our operations are subject to environmental laws and
regulations in the jurisdictions in which they operate, which
impose limitations on the discharge of pollutants into the
ground, air and water and establish standards for the genera-
tion, treatment, use, storage and disposal of solid and hazardous
wastes. We must also comply with various health and safety
regulations in the U.S. and abroad in connection with our opera-
tions. We cannot assure you that we have been or will be at all
times in substantial compliance with environmental and health
and safety laws. Failure to comply with any of these laws could
result in civil and criminal, monetary and non-monetary penalties
and damage to our reputation. In addition, we cannot provide
assurance that our costs of complying with current or future
environmental protection and health and safety laws will not
exceed our estimates or adversely affect our financial condition
and results of operations.
In addition, we may incur costs related to remedial efforts
or alleged environmental damage associated with past or cur-
rent waste disposal practices or other hazardous materials han-
dling practices. We are also from time to time party to personal
injury or other claims brought by private parties alleging injury
due to the presence of or exposure to hazardous substances.
For additional information regarding these risks, please refer to
“Item 1. Business—Regulatory Matters.” We cannot assure you
that our liabilities arising from past or future releases of, or expo-
sures to, hazardous substances will not exceed our estimates or
adversely affect our financial condition, results of operations
and reputation or that we will not be subject to additional claims
for personal injury or cleanup in the future based on our past,
present or future business activities.
results of operations,
Our businesses are subject to extensive governmental
regulation; failure to comply with those regulations could
adversely affect our
financial
condition and reputation.
In addition to the environmental regulations noted above, our
businesses are subject to extensive regulation by U.S. and non-
U.S. governmental entities at the federal, state and local levels,
including the following:
— We are required to comply with various import laws and
export control and economic sanctions laws, which may
affect our transactions with certain customers, business
partners and other persons, including in certain cases deal-
ings with or between our employees and subsidiaries. In
certain circumstances, export control and economic sanc-
tions regulations may prohibit the export of certain prod-
ucts, services and technologies, and in other circumstances
we may be required to obtain an export license before
exporting the controlled item. Compliance with the various
import laws that apply to our businesses can restrict
our access to, and increase the cost of obtaining, certain
products and at
times can interrupt our supply of
imported inventory.
— Certain of our products are medical devices and other
products that are subject to regulation by the FDA, by
counterpart agencies of other countries and by regulations
governing the management, storage, handling and disposal
of hazardous or radioactive materials. Violations of these
regulations, efficacy or safety concerns or trends of
adverse events with respect to our products can lead
recalls, seizures,
to warning letters, declining sales,
injunctions, administrative detentions, refusals to permit
importations, suspension or withdrawal of approvals and
pre-market notification rescissions.
— We also have agreements relating to the sale of products
to government entities and are subject to various statutes
and regulations that apply to companies doing business
with the government. Our agreements relating to the sale
of products to government entities may be subject to ter-
mination, reduction or modification in the event of changes
in government requirements, reductions in federal spend-
ing and other factors. We are also subject to investigation
and audit for compliance with the requirements governing
government contracts, including requirements related to
procurement integrity, export control, employment prac-
tices, the accuracy of records and the recording of costs. A
failure to comply with these requirements might result in
suspension of these contracts and suspension or debar-
ment from government contracting or subcontracting.
In addition, failure to comply with any of these regulations could
result in civil and criminal, monetary and non-monetary penal-
limitations on our ability
ties, disruptions to our business,
to import and export products and services, and damage to
our reputation.
Our reputation and our ability to do business may be impaired
by improper conduct by any of our employees, agents or
business partners.
We cannot provide assurance that our internal controls will
always protect us from reckless or criminal acts committed by
our employees, agents or business partners that would violate
U.S. and/or non-U.S. laws, including the laws governing pay-
ments to government officials, competition, money laundering
and data privacy. Any such improper actions could subject us to
civil or criminal investigations in the U.S. and in other jurisdic-
tions, could lead to substantial civil or criminal, monetary and
non-monetary penalties against us or our subsidiaries, and
could damage our reputation.
Adverse changes in our relationships with, or the financial
condition or performance of, key distributors, resellers
and other channel partners could adversely affect our
results of operations.
Certain of our businesses sell a significant amount of their prod-
ucts to key distributors, resellers and other channel partners that
have valuable relationships with customers and end-users.
Some of these distributors and other partners also sell our com-
petitors’ products, and if they favor our competitors’ products for
any reason they may fail to market our products effectively.
Adverse changes in our relationships with these distributors and
other partners, or adverse developments in their financial con-
dition or performance, could adversely affect our results of
operations and cash flows.
Any inability to hire, train and retain a sufficient number of
skilled officers and other employees could impede our
ability to compete successfully.
If we cannot hire, train and retain a sufficient number of qualified
employees, we may not be able to effectively integrate acquired
businesses and realize anticipated performance results from
those businesses, effectively implement the Danaher Business
System throughout our organization and achieve the cost
13
savings and other benefits that the effective implementation
of the Danaher Business System can achieve, and otherwise
profitably grow our business. Even if we do hire and retain a
sufficient number of employees, the expense necessary to
attract and motivate these officers and employees may
adversely affect our results of operations.
Cyclical economic conditions have affected and may
continue to adversely affect our financial condition and
results of operations.
Certain of our businesses operate in industries that have histori-
cally experienced periodic downturns, which have adversely
impacted demand for the equipment and services that we
manufacture and market. Any downturn or competitive pricing
pressures in these industries could adversely affect our finan-
cial condition and results of operations in any given period.
Changes in governmental regulations may reduce demand
for our products or increase our expenses.
We compete in markets in which we or our customers must com-
ply with federal, state, local and foreign regulations, such as
environmental, health and safety, and food and drug regulations.
We develop, configure and market our products to meet cus-
tomer needs created by these regulations. In addition, certain of
our customers receive reimbursement from government insur-
ance programs for some of the costs of the products that they
purchase from us. Any significant change in any of these regu-
lations or reimbursement programs could reduce demand for
our products or increase our costs of producing these products.
Foreign currency exchange rates and commodity prices
may adversely affect our results of operations and financial
condition.
We are exposed to a variety of market risks, including the effects
of changes in foreign currency exchange rates and commodity
prices. Changes in currency exchange rates and commodity
prices may have an adverse effect on our results of operations
and financial condition.
If we cannot obtain sufficient quantities of materials,
components and equipment required for our manufacturing
activities at competitive prices and quality and on a timely
basis, or if our manufacturing capacity does not meet
demand, our business and financial results will suffer.
We purchase materials, components and equipment from third
parties for use in our manufacturing operations. If we cannot
obtain sufficient quantities of these items at competitive prices
and quality and on a timely basis, we may not be able to produce
sufficient quantities of product to satisfy market demand, prod-
uct shipments may be delayed or our material or manufacturing
costs may increase. For example, although there have been no
recent raw materials shortages that have had a material adverse
impact on our business, market forces during the past two years
have caused significant increases in the costs of steel and
petroleum-based products, and with respect to the past year,
non-ferrous metals as well.
14
In addition, because we cannot always immediately adapt
our cost structures to changing market conditions, our
manufacturing capacity may at times exceed our production
requirements or fall short of our production requirements. Any
or all of these problems could result in the loss of customers,
provide an opportunity for competing products to gain market
acceptance and otherwise adversely affect our business and
financial results.
Work stoppages, union and works council campaigns,
labor disputes and other matters associated with our labor
force could adversely impact our results of operations and
cause us to incur incremental costs.
We have a number of domestic collective bargaining units and
various non-U.S. collective labor arrangements. While we gen-
erally have experienced satisfactory relations at our various
locations, we are subject to potential work stoppages, union and
works council campaigns and potential labor disputes, any of
which could adversely impact our results of operations and
cause us to incur incremental costs.
legal and business
International economic, political,
factors could negatively affect our results of operations,
cash flows and financial condition.
In 2006, approximately 49% of our sales were derived outside
the U.S. and we continue to increase our sales outside the U.S.
In addition, many of our manufacturing operations and suppliers
are located outside the U.S. Our international business is sub-
ject to risks that are customarily encountered in non-U.S. opera-
tions and could negatively affect our results of operations, cash
flows, financial condition and overall growth, including:
— interruption in the transportation of materials to us and
finished goods to our customers;
— changes in a specific country’s or region’s political or
economic conditions;
— trade protection measures;
— import or export licensing requirements;
— unexpected changes in laws or licensing and regulatory
requirements;
— difficulty in staffing and managing widespread operations;
— differing labor regulations;
— differing protection of intellectual property; and
— terrorist activities and the U.S. and international response
thereto.
Audits by tax authorities could result in additional tax
payments for prior periods.
The amount of income taxes we pay is subject to ongoing audits
by U.S. federal, state and local tax authorities and by non-U.S. tax
authorities. If these audits result in assessments different from
our reserves, our future results may include unfavorable adjust-
ments to our tax liabilities.
Our defined benefit pension plans are subject to financial
market risks that could adversely affect our operating
results.
Our defined benefit pension plan obligations are affected by
changes in market interest rates and the majority of plan assets
are invested in publicly traded debt and equity securities, which
are affected by market risks. Significant changes in market
interest rates, decreases in the fair value of plan assets and
investment losses on plan assets may adversely impact our
future operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our corporate headquarters are located in Washington, D.C. At
December 31, 2006, we had 218 significant manufacturing and
distribution locations worldwide, comprising approximately
20 million square feet, of which approximately 12 million square
feet are owned and approximately 8 million square feet
are leased. Of these manufacturing and distribution locations,
117 facilities are located in the United States and 101 are
located outside the United States, primarily in Europe and to a
lesser extent in Asia, the rest of North America, Latin America
and Australia. The number of manufacturing and distribution
locations by business segment are:
— Professional Instrumentation, 54;
— Medical Technologies, 49;
— Industrial Technologies, 78; and
— Tools & Components, 37.
We consider our facilities suitable and adequate for the pur-
poses for which they are used and do not anticipate difficulty in
renewing existing leases as they expire or in finding alternative
facilities. Please refer to Note 10 in the Consolidated Financial
Statements included in this Annual Report for additional infor-
mation with respect to our lease commitments.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, the California Department of Toxic
Substances Control (“DTSC”) has informed Joslyn Sunbank
Company LLC (“Joslyn Sunbank”), a subsidiary of the Company,
that its Paso Robles, California facility allegedly violated certain
provisions of the California Hazardous Waste Control Law
(“HWCL”) and related regulations. The DTSC alleges certain
deficiencies related to recordkeeping and reporting matters,
training and preventive measures and hazardous waste storage
and handling practices. The DTSC has acknowledged that
Joslyn Sunbank is no longer in violation of the HWCL or related
regulations and that Joslyn Sunbank has taken appropriate cor-
rective action in response to the alleged violations. The DTSC
and Joslyn Sunbank have reached an agreement in principle
whereby all of Joslyn Sunbank’s alleged violations of the HWCL
15
and related regulations would be settled for $495,000. The
settlement agreement would also include certain injunctive
relief under which Joslyn Sunbank would agree to follow speci-
fied procedures relating to recordkeeping and reporting, train-
ing and preventive measures and hazardous waste storage and
handling. The parties expect to reflect the terms of the agree-
ment in principle in a settlement agreement that is being nego-
tiated. The Company does not believe that the final resolution of
this matter will have a material adverse effect on the Company’s
results of operations, cash flow or financial condition.
In addition to the litigation noted under “Item 1. Business—
Regulatory Matters—Environmental, Health & Safety”, we are,
from time to time, subject to a variety of litigation incidental to
our business. These lawsuits primarily involve claims for dam-
ages arising out of the use of our products, claims relating to
intellectual property matters and claims involving employment
matters and commercial disputes. We may also become subject
to lawsuits as a result of past or future acquisitions. Some of
these lawsuits include claims for punitive and consequential as
well as compensatory damages. While we maintain workers
compensation, property, cargo, automobile, crime, fiduciary,
liability, and directors’ and officers’
product, general
liability
insurance (and have acquired rights under similar policies in
connection with certain acquisitions) that we believe covers a
portion of these claims, this insurance may be insufficient or
unavailable to protect us against potential loss exposures. In
addition, while we believe we are entitled to indemnification
from third parties for some of these claims, these rights may also
be insufficient or unavailable to protect us against potential loss
exposures. We believe that the results of these litigation matters
and other pending legal proceedings will not have a materially
adverse effect on our cash flows or financial condition, even
before taking into account any related insurance or indemnifi-
cation recoveries.
We maintain third party insurance policies up to certain lim-
its to cover liability costs in excess of predetermined retained
amounts. We carry significant deductibles and self-insured
retentions under our insurance policies, and our management
believes that we maintain adequate accruals to cover the
retained liability. Our management determines our accrual for
self-insurance liability based on claims filed and an estimate of
claims incurred but not yet reported.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2006.
Executive Officers of the Registrant
Set forth below are the names, ages, positions and experience of our executive officers. All of our executive officers hold office at
the pleasure of our Board of Directors.
Name
Steven M. Rales
Mitchell P. Rales
H. Lawrence Culp, Jr.
Daniel L. Comas
Philip W. Knisely
Steven E. Simms
James A. Lico
Thomas P. Joyce, Jr.
James H. Ditkoff
Jonathan P. Graham
Robert S. Lutz
Daniel A. Raskas
Age
55
50
43
43
52
51
41
46
60
46
49
40
Position
Chairman of the Board
Chairman of the Executive Committee
Chief Executive Officer and President
Executive Vice President and Chief Financial Officer
Executive Vice President
Executive Vice President
Executive Vice President
Executive Vice President
Senior Vice President—Finance and Tax
Senior Vice President—General Counsel
Vice President—Chief Accounting Officer
Vice President—Corporate Development
Officer
Since
1984
1984
1995
1996
2000
1996
2002
2002
1991
2006
2002
2004
Steven M. Rales has served as Chairman of the Board since
January 1984. In addition, during the past five years, he has
been a principal in a number of private business entities with
interests in manufacturing companies and publicly traded secu-
rities. Mr. Rales is a brother of Mitchell P. Rales.
Mitchell P. Rales has served as Chairman of the Executive
Committee since 1990. In addition, during the past five years, he
has been a principal in a number of private business entities with
interests in manufacturing companies and publicly traded secu-
rities. Mr. Rales is a brother of Steven M. Rales.
H. Lawrence Culp, Jr. was appointed President and Chief
Executive Officer in 2001.
Daniel L. Comas was appointed Executive Vice President
and Chief Financial Officer in April 2005. He served as Vice
President—Corporate Development from 1996 to April 2004
and as Senior Vice President—Finance and Corporate Develop-
ment from April 2004 to April 2005.
Philip W. Knisely has served as Executive Vice President
since he joined Danaher in June 2000.
Steven E. Simms was appointed Executive Vice President
in November 2000.
James A. Lico was appointed Executive Vice President in
September 2005. He has served in a variety of general manage-
ment positions since joining Danaher in 1996, including most
recently as President of Fluke Corporation from July 2000 until
September 2005, as Vice President and Group Executive of
Danaher Corporation from December 2002 until September
2005, and as Vice President—Danaher Business Systems
Office from September 2004 until September 2005.
Thomas P. Joyce, Jr. was appointed Executive Vice
President in May 2006. He has served in a variety of general
management positions since joining Danaher in 1990, includ-
ing most recently as President of Hach Company from May
2001 until December 2002, and as Vice President and Group
Executive of Danaher Corporation from December 2002
until May 2006.
James H. Ditkoff served as Vice President—Finance and
Tax from January 1991 to December 2002 and has served as
Senior Vice President—Finance and Tax since December 2002.
Jonathan P. Graham joined Danaher as Senior Vice
President—General Counsel in July 2006. Prior to joining the
company, he served as Vice President, Litigation and Legal
Policy for General Electric Corporation, a diversified industrial
company, from October 2004 until June 2006. He practiced
with the law firm of Williams & Connolly LLP, a law firm based in
Washington, D.C., from 1988 until September 2004, most
recently as partner from 1996 to October 2004.
Robert S. Lutz joined Danaher as Vice President—Audit
and Reporting in July 2002 and was appointed Vice President—
Chief Accounting Officer in March 2003. Prior to joining
Danaher, he served in various positions at Arthur Andersen LLP,
an accounting firm, from 1979 until 2002, most recently as part-
ner from 1991 to July 2002.
Daniel A. Raskas was appointed Vice President—Corporate
Development in November 2004. Prior to joining Danaher, he
worked for Thayer Capital Partners, a private equity investment
firm, from 1998 through October 2004, most recently as Manag-
ing Director from 2001 through October 2004.
17
Part II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange under the symbol DHR. As of February 16, 2007, there were approxi-
mately 3,300 holders of record of our common stock. The high and low common stock prices per share as reported on the New York
Stock Exchange, and the dividends paid per share, in each case for the periods described below, were as follows:
First quarter
Second quarter
Third quarter
Fourth quarter
2006
Low
$54.04
$60.63
$59.72
$66.87
High
$65.42
$68.47
$69.05
$75.28
Dividends
Per Share
$.02
$.02
$.02
$.02
High
$56.23
$55.73
$56.68
$58.07
2005
Low
$52.60
$48.56
$51.76
$49.93
Dividends
Per Share
$.015
$.015
$ .02
$ .02
Our payment of dividends in the future will be determined by our Board of Directors and will depend on business conditions, our earn-
ings and other factors.
Issuer Purchase of Equity Securities
On April 21, 2005, we announced that on April 20, 2005, our Board of Directors authorized the repurchase of up to 10 million shares
of our common stock from time to time on the open market or in privately negotiated transactions. We repurchased no shares during
the year ended December 31, 2006, and 4,996,000 shares remain available for repurchase under the program. There is no expiration
date for our repurchase program. Our management will determine the timing and amount of any shares repurchased based on their
evaluation of market conditions and other factors. We may suspend or discontinue the repurchase program at any time. Any repur-
chased shares will be available for use in connection with our 1998 Stock Option Plan (or any successor plan) or Executive Deferred
Incentive Program and for other corporate purposes. We expect to fund the repurchase program using our available cash balances
or existing lines of credit.
18
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share information)
2006
2005
2004
2003
2002
Sales
Operating Profit
Net earnings before effect of accounting
change and reduction of income tax
reserves related to previously
discontinued operation
Net earnings
Earnings per share before accounting
change and reduction of income tax
reserves related to previously
discontinued operation
Basic
Diluted
Earnings per share
Basic
Diluted
Dividends per share
Total assets
Total debt
$ 9,596,404
1,517,993
$ 7,984,704
1,264,668
$6,889,301
1,105,133
$ 5,293,876
845,995(a)
$ 4,577,232
701,122(b)
1,122,029
1,122,029
897,800
897,800
746,000
746,000
536,834(a)
536,834(a)
434,141(b)(c)
290,391(b)(c)
3.64
3.48
2.91
2.76
2.41
2.30
3.64
3.48
0.08
12,864,151
2,433,716
2.91
2.76
0.07
9,163,109
1,041,722
2.41
2.30
0.058
8,493,893
1,350,298
1.75(a)
1.69(a)
1.75(a)
1.69(a)
0.05
6,890,050
1,298,883
1.45(b)(c)
1.39(b)(c)
0.97(b)
0.94(b)
0.045
6,029,145
1,309,964
(a) Includes a benefit of $22.5 million ($14.6 million after-tax or $0.05 per diluted share) from a gain on curtailment of the Company’s Cash Balance Pension
Plan recorded in the fourth quarter of 2003.
(b) Includes a benefit of $6.3 million ($4.1 million after-tax or $0.01 per diluted share) from the reversal of unutilized restructuring accruals recorded in the
fourth quarter of 2002.
(c) In 2002, the Company recorded an after-tax charge for $173.8 million ($0.58 per basic share and $0.55 per diluted share) related to impairment of
goodwill resulting from the adoption of SFAS No. 142. In addition, the Company recorded an after-tax benefit of $30 million ($0.10 per basic and diluted
share) due to reduction of tax reserves established related to a previously discontinued operation.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the Company’s finan-
cial condition and results of operations should be read in con-
junction with its audited consolidated financial statements.
Overview
Danaher Corporation strives to create shareholder value
through:
— delivering sales growth, excluding the impact of acquired
businesses, in excess of the overall market growth for its
products and services;
— upper quartile financial performance when compared
against peer companies; and
— upper quartile cash flow generation from operations when
compared against peer companies.
To accomplish these goals, the Company uses a set of tools and
processes, known as the DANAHER BUSINESS SYSTEM
(“DBS”), which are designed to continuously improve business per-
formance in critical areas of quality, delivery, cost and innovation.
The Company also acquires businesses that it believes can help it
achieve the objectives described above. The Company will acquire
businesses when they strategically fit with existing operations or
when they are of such a nature and size as to establish a new stra-
tegic line of business. The extent to which appropriate acquisitions
are made and integrated can significantly affect the Company’s
overall growth and operating results.
Danaher is a multinational corporation with global opera-
tions. In 2006, approximately 49% of Danaher’s sales were
derived outside the United States. As a global business,
Danaher’s operations are affected by worldwide, regional and
industry economic and political factors. However, Danaher’s
geographic and industry diversity, as well as the diversity of its
product sales and services, has helped limit the impact of any
one industry or the economy of any single country on the con-
solidated operating results. Given the broad range of products
manufactured and geographies served, management does not
use any indices other than general economic trends to predict
the outlook for the Company. The Company’s individual busi-
nesses monitor key competitors and customers, including to the
extent possible their sales, to gauge relative performance and
the outlook for the future. In addition, the Company’s order rates
are highly indicative of the Company’s future revenue and thus
a key measure of anticipated performance. In those industry
segments where the Company is a capital equipment provider,
revenues depend on the capital expenditure budgets and
spending patterns of the Company’s customers, who may delay
or accelerate purchases in reaction to changes in their busi-
nesses and in the economy.
The Company continues to operate in a highly competitive
business environment in the markets and geographies served.
The Company’s performance will be impacted by its ability to
address a variety of challenges and opportunities in the markets
19
and geographies it serves, including trends toward increased
utilization of the global labor force, consolidation of competitors,
the expansion of market opportunities in Asia, increasing signifi-
cance of technology and intellectual property in the businesses
in which the Company operates and recent increases in raw
material costs. The Company will continue to assess market
needs with the objective of positioning itself to provide superior
products and services to its customers in a cost efficient
manner. With the acquisition of Sybron Dental Specialties,
Inc. (Sybron Dental) and Vision Systems Limited (Vision),
Company management and other personnel are devoting
significant attention to the successful
integration of these
businesses into Danaher.
The Company has significantly expanded its medical tech-
nologies segment since it acquired its first medical technologies
businesses in 2004. In May 2006, the Company acquired all of
the outstanding shares of Sybron Dental. Sybron Dental is a
leading manufacturer of a broad range of products for the dental
professional and had annual revenues of approximately $650
million in its most recent completed fiscal year. Danaher paid
total consideration of approximately $2 billion for the Sybron
Dental shares, including transaction costs and net of $94 million
of cash acquired, and assumed approximately $182 million
of debt. Sybron Dental
is expected to provide additional
sales and earnings growth opportunities for the Company’s
dental business both through the growth of existing products
and services and through the potential acquisition of comple-
mentary businesses.
In addition, in the last quarter of 2006 and first quarter of
2007, the Company acquired all of the outstanding shares of
Vision for an aggregate price of approximately $520 million,
including transaction costs and net of $122 million of cash
acquired and assumed $1.5 million of debt. Vision, based in
Australia, manufactures and markets automated instruments,
antibodies and biochemical reagents used for biopsy-based
detection of cancer and infectious diseases, and had revenues
of approximately $86 million in its last completed fiscal year.
Management believes that the pairing of Vision with the
Company’s existing life science instrumentation business,
Leica, will significantly broaden the Company’s product offer-
ings in the growing anatomical pathology market and expand
the sales and growth opportunities for both the Leica and Vision
businesses. The Company believes that the pairing of Leica and
Vision will also create a broader base for the acquisition of
complementary businesses in the life sciences industry.
Danaher financed the acquisitions of Sybron Dental and
Vision primarily with proceeds from the issuance of commercial
paper and to a lesser extent from available cash. Under the glo-
bal commercial paper program which the Company established
in May 2006, the Company, or an indirect wholly-owned financ-
ing subsidiary of the Company, may issue and sell unsecured,
short-term promissory notes in aggregate principal amount not
to exceed $2.2 billion. The credit facilities provide credit support
for the commercial paper program and have the practical effect
of reducing the maximum amount of commercial paper that the
Company can issue under the commercial paper program from
$2.2 billion to $1.5 billion.
20
On July 21, 2006, a financing subsidiary of the Company
issued approximately $630 million (E500 million) of 4.5% guar-
anteed notes due July 22, 2013 with a fixed re-offer price of
99.623 in a private placement outside the U.S. (the “Eurobond
Notes”). Payment obligations under these Eurobond Notes are
guaranteed by the Company. The net proceeds of the offering,
after the deduction of underwriting commissions but prior to the
deduction of other issuance costs, were E496 million and were
used to repay a portion of the Company’s outstanding commer-
cial paper issued to acquire Sybron Dental and for general
corporate purposes.
“Share-Based Payment”
Effective January 1, 2006, the Company adopted State-
ment of Financial Accounting Standards No. 123 (revised
2004),
(SFAS No. 123R) which
requires the Company to expense stock-based compensation.
The Company has adopted SFAS No. 123R using the modified
prospective application method of adoption, which requires the
Company to record compensation cost related to unvested
stock awards as of December 31, 2005 by recognizing the
unamortized grant date fair value of these awards over the
remaining service periods of those awards with no change in
historical reported earnings.
Although the Company has a U.S. Dollar functional cur-
rency for reporting purposes, a substantial portion of its sales
and profits are derived from foreign countries. Sales and profits
of subsidiaries operating outside of the United States are trans-
lated using exchange rates effective during the respective
period. Therefore, reported sales and profits are affected by
changes in currency rates, which are outside of the control of
management. The Company has generally accepted the expo-
sure to exchange rate movements relative to its foreign opera-
tions without using derivative financial instruments to manage
this risk. Therefore, both positive and negative movements in
currency exchange rates against the U.S. Dollar will continue to
affect the reported amount of sales and profit in the Company’s
consolidated financial statements. The borrowings under the
Eurobond Notes, as well as the European component of the
commercial paper program, provide a natural hedge to a portion
of the Company’s European net asset position. On an overall
basis, the U.S. Dollar weakened against other major currencies
in 2006 and closed the year at exchange rate levels weaker than
the exchange rate levels as of the end of 2005.
While differences exist among the Company’s businesses,
the Company generally experienced broad-based sales growth
in 2006. Revenue growth rates for each of the quarters of 2006
exceeded growth rates for each of the comparable quarters of
2005. Management believes that this revenue growth reflects
the impact of strong global economic conditions, the continued
shift of the Company’s operations into higher growth sectors of
the economy, the Company’s investments in growing new
markets and products, comparisons against more modest sales
growth periods in 2005 and generally higher prices for the
Company’s products in 2006 compared to 2005.
Results of Operations
Consolidated sales for the year ended December 31, 2006
increased approximately 20% over the comparable period of
2005. Sales from existing businesses (references to “sales from
existing businesses” in this report include sales from acquired
businesses starting from and after the first anniversary of the
acquisition, but exclude currency effect) contributed 6.5%
growth. Acquisitions accounted for approximately 13% growth.
The impact of currency translation on sales provided approxi-
mately 0.5% growth as the weakness of the U.S. dollar against
other major currencies in the second half of 2006 more than off-
set the strengthening of the U.S. dollar experienced in the first
quarter of 2006. Price increases contributed approximately
1.5% growth on a year-over-year basis, and are included in the
increase in sales from existing businesses.
The growth in sales from acquisitions in the year ended
December 31, 2006 primarily related to acquisitions in the
Company’s medical technologies business. During 2005, the
Company acquired four medical
technologies businesses,
the largest being the acquisition of Leica Microsystems AG in
August 2005. The 2006 acquisitions of Sybron Dental in May
2006 and to a lesser extent Vision have also contributed to this
revenue growth.
Operating profit margins for the Company were 15.8% in
the year ended December 31, 2006 essentially the same as in
2005. Following are the key factors impacting the year-over-
year comparison of operating profit margins:
— As required by SFAS 123R, beginning in the first quarter of
2006 the Company began recording compensation cost
related to stock option awards which decreased 2006
operating profit by approximately $55 million and reduced
operating profit margins by 60 basis points on a year over
year basis;
— Operating profit margin improvements in the Company’s
existing operations were offset by the lower operating mar-
gins of acquired businesses, primarily Leica and Vision,
which reduced 2006 operating margins by 60 basis points
on a year over year basis. These results include the expens-
ing of approximately $6.5 million of in-process research
and development
in connection with the acquisition
of Vision;
— Gains related to the sale of a business and the collection of
a previously reserved note receivable in the second quarter
of 2005 contributed approximately 10 basis points to 2005
operating profit margins impacting the operating margin
comparisons for the year ended December 31, 2006
compared with 2005;
— A first quarter 2005 $5.3 million gain on the sale of
real estate benefited 2005 operating margins by approxi-
mately 5 basis points impacting the operating margin
comparisons for the year ended December 31, 2006
compared with 2005;
— A gain on the sale of the Company’s investment in First
Technology plc in the second quarter of 2006 contributed
approximately 15 basis points to 2006 operating profit
margins impacting the operating margin comparisons for
the year ended December 31, 2006 compared with 2005;
— A loss related to the settlement of patent infringement liti-
gation in the fourth quarter of 2005 reduced operating
profit margins by approximately 25 basis points for the year
ended December 31, 2005 impacting comparisons with
operating margins for the year ended December 31, 2006.
Operating profit margins for the year ended December 31,
2006 also benefited from on-going cost reduction initiatives
including application of the Danaher Business System and low-
cost region sourcing and production initiatives and the addi-
tional leverage created from sales growth compared with the
prior year period. The ongoing application of the Danaher Busi-
ness System in each of our businesses, and the Company’s low-
cost
region sourcing and production initiatives, are both
expected to further improve operating profit margins at both
existing and newly acquired businesses, including Leica, Sybron
Dental and Vision.
The Company’s effective income tax rate of 22.4% for the
year ended December 31, 2006 reflects benefits associated
with reductions in valuation allowances related to foreign tax
credit carryforwards that are now expected to be realized and
favorable resolution of examinations of certain previously filed
returns which resulted in the reduction of previously provided
In addition, the Company’s tax provision was
tax reserves.
reduced as a result of a change in German tax law which entitles
the Company to cash payments in lieu of previously held unrec-
ognized tax credits. The Company expects the tax rate for 2007
to be approximately 27%.
The following table summarizes sales by business segment
for each of the periods indicated:
For the years ended December 31
($ in millions)
Professional
Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Total
2006
2005
2004
$2,906.5
2,219.9
3,119.2
1,350.8
$2,600.6
1,181.5
2,908.1
1,294.5
$2,290.6
672.9
2,619.5
1,306.3
$9,596.4
$ 7,984.7
$6,889.3
Professional Instrumentation
The Professional Instrumentation segment encompasses two
strategic businesses: environmental and electronic test.
21
Professional Instrumentation Selected Financial Data
For the years ended December 31
($ in millions)
Sales
Operating Profit
Operating profit as a %
2006
2005
2004
$2,906.5
625.6
$2,600.6
538.3
$2,290.6
478.3
of sales
21.5%
20.7%
20.9%
Components of Sales Growth 2006 vs. 2005 2005 vs. 2004
Existing businesses
Acquisitions
Currency exchange rates
Total
7.5%
4.0%
0.5%
12.0%
5.0%
8.0%
0.5%
13.5%
2006 Compared to 2005
As detailed in the table above, segment sales increased 12% for
2006 compared to 2005. Price increases, which are included in
sales from existing businesses, contributed approximately 1.5%
to overall sales growth compared to 2005. Sales from existing
businesses increased in both of the Company’s strategic lines
of business.
Operating profit margins for the segment were 21.5% in
2006 compared to 20.7% for 2005. Operating profit margin
improvements in the segment’s existing operations were offset
by the lower operating margins of acquired businesses which
reduced segment operating margins by approximately 40 basis
points in 2006 compared to 2005. In addition, the implementa-
tion of SFAS 123R reduced operating profit for the segment by
approximately $14.7 million and contributed to a 50 basis point
reduction in operating profit margins in 2006 compared
to 2005.
Operating profit margins from existing businesses ben-
efited from on-going cost reduction initiatives through applica-
tion of the Danaher Business System, low-cost region sourcing
and production initiatives and the additional leverage created
from sales growth compared with the prior year period. The
ongoing application of the Danaher Business System in each of
our businesses, and the Company’s low-cost region sourcing
and production initiatives are both expected to further improve
operating profit margins.
Overview of Businesses within Professional
Instrumentation Segment
E N V I R O N M E N T A L . Sales from the Company’s environmental
businesses, representing approximately 63% of segment sales
for 2006, increased approximately 10.5% in 2006 compared to
2005. Sales from existing businesses accounted for approxi-
mately 8% growth. Acquisitions accounted for approximately
2% growth and the impact of currency translation accounted for
approximately 0.5% growth.
22
The Company’s water quality businesses reported mid-
single digit sales growth for 2006. This growth was primarily the
result of strength in Hach/Lange’s laboratory and process
instrumentation products in both the North American and Euro-
pean markets. Sales in Asia grew over 20% in 2006 reflecting
continued penetration of these markets. The Company’s Hach
Ultra Analytics business reported mid-single digit growth in
2006. Sales growth in North America and Europe, as well as the
impact of new product introductions, drove the improvements.
Lower sales in Asia reflecting in part a difficult comparable sales
period in 2005 due to certain large projects not repeating in
2006, partially offset these improvements. These businesses
continue to focus on growing markets in developing countries
such as India and China to enhance their growth prospects.
Sales growth from acquired businesses primarily reflects
the impact of three smaller acquisitions completed in 2005
and 2006.
The Gilbarco Veeder-Root retail petroleum product and
service business reported high-single digit sales growth in
2006 compared to low single-digit sales growth in 2005. This
growth was driven by extensive refurbishment activity in Europe
and regulatory incentives in Mexico that encouraged dispensers
to be embedded with tamper proof capability. The businesses’
newly introduced dispensing equipment and its recently intro-
duced point of sale equipment were favorably received which
also contributed to this growth.
E L E C T R O N I C TE S T . Sales from the Company’s electronic test
businesses, representing approximately 37% of segment sales for
2006, grew 14.5% compared to 2005. Sales from existing busi-
nesses accounted for 7.0% growth. Acquisitions accounted for
7.5% growth and currency translation had a negligible impact.
Sales growth from existing businesses in 2006 continued
the strong growth experienced throughout 2005. The business
industrial
experienced high-single digit growth in traditional
channels in all major geographic regions with particular strength
in the Asian and Latin American markets. Demand for the busi-
nesses’ thermography and new power quality test products
contributed significantly to this overall growth. The Company’s
network-test business reported mid-single digit sales growth
for 2006 compared to 2005. Sales growth slowed in North
America and Europe in 2006 compared to 2005 since 2005
benefited from several new product launches. The network-test
business experienced somewhat stronger sales growth in
China and Latin America in 2006 compared to 2005.
2005 Compared to 2004
Sales of the Professional Instrumentation segment increased
13.5% for 2005 compared to 2004. Price increases, which are
included in sales from existing businesses, contributed less than
1% to overall sales growth compared to 2004. Sales from exist-
ing businesses increased in both of the Company’s strategic
lines of business with the highest growth resulting from the
electronic test and environmental water quality businesses.
Sales in the Company’s environmental and retail petroleum
automation business were up low-single digits for the year.
Operating profit margins for the segment were 20.7% in
2005 compared to 20.9% for 2004. Operating profit margins in
the segment for 2005 compared with 2004 were adversely
impacted by the dilutive impact of acquisitions. These recent
acquisitions operate at lower overall operating profit margins
than the segment’s ongoing businesses. Operating profit mar-
gins for 2005 were also impacted by higher expense levels to
support strategic growth initiatives in certain businesses.
On-going cost reduction initiatives through the application of
the Danaher Business System, low-cost region sourcing and
production initiatives and the additional leverage created from
sales growth compared with the prior year period, partially offset
these adverse impacts.
Overview of Businesses within Professional
Instrumentation Segment
E N V I R O N M E N T A L . Sales from the Company’s environmental
businesses, representing approximately 64% of segment sales
for 2005, increased approximately 12.5% in 2005 compared to
2004. Sales from existing businesses accounted for approxi-
mately 5.0% growth. Acquisitions accounted for approximately
7.5% growth. The impact of currency translation was negligible
for 2005 compared to 2004.
The Company’s Hach/Lange water quality businesses
reported high-single digit growth in 2005 primarily driven by
mid-single digit growth in laboratory sales and low-double digit
growth in process instrumentation sales in both the United
States and European markets. New product launches in 2005
positively impacted process instrumentation sales. The busi-
ness’ sales in China also grew over 35% in 2005 on a year-over-
year basis. The Company’s Hach Ultra Analytics business
reported mid-single digit growth in 2005, driven primarily by
high-single digit growth in the U.S. partially offset by slowing
sales in electronics end-markets and in Europe. Sales growth
from acquired businesses primarily reflects the impact of the
acquisition of Trojan Technologies in November 2004 and two
smaller water quality businesses during 2005.
The Gilbarco Veeder-Root environmental and retail petro-
leum automation business reported low-single digit sales
growth for 2005 compared to 2004. The business experienced
growth in sales of environmental equipment in Asia and Latin
America. Sales in Europe were down compared to 2004, due in
part to the fact that 2004 sales included the impact of a large
shipment. Sales in the U.S. were flat compared to 2004.
E L E C T R O N I C TE S T . Sales from the Company’s electronic
test businesses, representing approximately 36% of segment
sales for 2005, grew 16.0% compared to 2004. Sales from
existing businesses accounted for 6.5% growth. Acquisitions
accounted for 8.5% growth and favorable currency translation
accounted for 1.0% growth.
Sales growth from existing businesses for 2005 built on
strong performance experienced by this business throughout
2004. Key contributors to the 2005 growth included strength in
the U.S. and European industrial and electrical channels, in each
case driven by strong demand for recently introduced product
offerings. Sales in China also showed strong growth during
2005. The Company’s network-test business reported flat sales
growth for 2005 compared to a very strong 2004. The
business’s 2004 results benefited from delivery of a large ship-
ment in the fourth quarter of 2004 for test equipment to service
a telecommunication customer.
Medical Technologies
The Medical Technologies segment consists of businesses
which offer dentists, other doctors and hospital and research
professionals various products and services that are used in
connection with the performance of their work.
Medical Technologies Selected Financial Data
For the years ended December 31
($ in millions)
2006
2005
2004
Sales
Operating Profit
Operating profit as a
% of sales
$2,219.9
261.6
$1,181.5
138.7
$ 672.9
76.1
11.8%
11.7%
11.3%
Components of Sales Growth 2006 vs. 2005 2005 vs. 2004
Existing businesses
Acquisitions
Currency exchange rates
Total
8.5%
78.0%
1.5%
88.0%
2.5%
75.0%
(2.0)%
75.5%
2006 Compared to 2005
As detailed in the table above, segment sales increased 88% for
2006 compared to 2005. Price increases, which are included in
sales from existing businesses, contributed approximately 1%
to overall sales growth compared to 2005.
The Company’s dental technology businesses experienced
high-single digit growth in 2006 compared to 2005. Growth in
the dental technology businesses was driven by continued
strength in the instrument product lines as well as strong sales
of imaging product lines in North America and Asia driven by
new product introductions. The Company completed two acqui-
sitions subsequent to December 31, 2006 which will further
enhance its imaging product offerings. Sybron Dental experi-
enced low-double digit sales growth in 2006, however, all
Sybron Dental sales are reported as a component of acquisition
growth due to its May 2006 acquisition.
Radiometer’s critical care diagnostics business experi-
enced mid-single digit growth in 2006 compared to 2005. Radi-
ometer’s sales improved in all major geographic regions with
particular strength in sales of consumables in Europe resulting
from broad based diagnostic instrument placements in the first
half of 2006.
Leica’s life science instrumentation business experienced
high-single digit growth in 2006 compared to 2005. Strength
23
from the sale of stereo microscopes and specimen preparation
equipment drove growth in Europe and Asia, and to a lesser
extent North America. Leica’s sales have been included as a
component of sales from existing businesses since the first
anniversary of the acquisition and were reported as a compo-
nent of acquisition growth prior to that anniversary date. Vision
has been consolidated with the segment’s results as of the date
the Company gained control of Vision in November 2006 and
its sales are also included as a component of acquisition growth.
Operating profit margins for the segment were 11.8% in
2006 compared to 11.7% for 2005. Operating profit margin
improvements in the segment’s existing operations, largely as a
result of margin improvements within the dental technology
businesses, were offset by the lower operating margins of
acquired businesses, primarily Leica and the expensing of
in-process research and development in connection with the
acquisition of Vision which reduced operating profit margins for
the year ended December 31, 2006 by approximately 45 basis
points compared to 2005. In addition, the implementation of
SFAS 123R resulted in approximately $6 million of stock option
compensation expense and reduced operating profit margins
for the year ended December 31, 2006 by approximately 30
basis points compared to 2005. The Company also recorded a
$4.5 million charge in the first quarter of 2006 for impairment
of a minority interest in a medical technologies company, which
reduced 2006 operating profit margins by approximately 20
basis points compared to 2005.
Operating profit margins from existing businesses ben-
efited from on-going cost reduction initiatives through applica-
tion of the Danaher Business System, low-cost region sourcing
and production initiatives and the additional leverage created
from sales growth compared with the prior year period. The
ongoing application of the Danaher Business System in each of
our businesses, and the Company’s low-cost region sourcing
and production initiatives are both expected to further improve
operating profit margins in the segment at both existing
and newly acquired businesses, including Leica, Sybron Dental
and Vision.
2005 Compared to 2004
Sales of the Medical Technologies segment increased 75.5%
for 2005 compared to 2004. Price increases, which are
included in sales from existing businesses, were negligible in
2005 compared to 2004.
Radiometer’s business experienced mid-single digit
growth for 2005 over the comparable period of 2004. This per-
formance was primarily the result of growth in North America
and Japan, driven by placements of recently introduced prod-
ucts and related accessory sales, offset by weaker performance
in Europe. Sales from existing businesses in the Company’s
dental businesses experienced mid-single digit growth in fourth
quarter of 2005 compared to the fourth quarter of 2004. For the
full year 2005, the dental businesses sales growth was flat for
the period of ownership, but would have reported mid-single
digit growth on a full year pro forma basis had they
been included for a full year in both 2005 and 2004. Sales for
2005 were negatively impacted by changes in German
24
reimbursement regulations as well as the reduction in promo-
tional activity in 2005 while the business restructured certain
German operations which occurred in the third and fourth quar-
ters of 2005. Sales for 2005 benefited from strong growth
experienced with the introduction of a new digital imaging prod-
uct offering in the second half of 2005. The business also expe-
rienced sales growth due to the third quarter launch of a sensor
line with US distribution as well as strong sales growth at Pelton
& Crane, a 2005 dental acquisition.
The results of Leica have been reflected in the Company’s
results of operations since its acquisition in August 2005. Leica
had annual revenues from continuing operations of approxi-
mately $540 million in 2004 (excluding approximately $120
million of revenue attributable to the semiconductor equipment
business that was divested shortly after acquisition). Leica’s
gross margins approximated the Company’s overall gross mar-
gins and did not had a dilutive impact on gross margins in 2005.
However, Leica’s operating profit margins are below the Com-
pany and segment average and were dilutive to the segment
and overall Company operating margins.
Operating profit margins for the segment were 11.7% in
2005 compared to 11.3% for 2004. Operating profit margins in
the segment for 2005 compared with 2004 were adversely
impacted by the dilutive impact of acquisitions, principally Leica
and KaVo. In addition, 2005 operating profit margins for the
segment reflect additional costs associated with restructuring
actions within the dental business, which generally commenced
in the third quarter of 2005. Operating profit margins for 2005
were also impacted by higher expense levels to support strate-
gic growth initiatives in certain businesses. On-going cost
reduction initiatives through the application of the Danaher
Business System, low-cost region sourcing and production ini-
tiatives and the additional leverage created from sales growth
compared with the prior year period, partially offset these
adverse impacts.
Industrial Technologies
The Industrial Technologies segment encompasses two strate-
gic businesses, motion and product identification, and three
focused niche businesses, aerospace and defense, sensors &
controls and power quality.
Industrial Technologies Segment Selected
Financial Data
For the Years Ended December 31,
($ in millions)
Operating Performance
2006
2005
2004
Sales
Operating profit
Operating profit as a
% of sales
$3,119.2
485.5
$2,908.1
426.4
$2,619.5
383.1
15.6%
14.7%
14.6%
Components of Sales Growth 2006 vs. 2005 2005 vs. 2004
Existing businesses
Acquisitions
Currency exchange rates
Total
6.0%
1.0%
0.5%
7.5%
5.0%
6.0%
0.0%
11.0%
2006 Compared to 2005
Sales growth from existing businesses was due primarily to
sales growth in the motion, aerospace and defense and sensor
and controls businesses. Price increases, which are included as
a component of sales from existing businesses, contributed
approximately 1.5% to overall sales growth compared to 2005.
Several small acquisitions in 2005 and the first quarter of 2006
accounted for 1% growth.
Operating profit margins for the segment were 15.6% in
2006 compared to 14.7% in 2005. The overall improvement in
operating profit margins was driven primarily by additional lever-
age from sales growth, on-going cost reductions associated
with Danaher Business System initiatives completed during
2005 and 2006, and margin improvements in businesses
acquired in prior years, which typically have higher cost struc-
tures than the Company’s existing operations. Recently
acquired businesses had no dilutive impact on overall operating
profit margins for 2006. The improvements to operating
profit margins were partially offset by the implementation of
SFAS 123R which required the Company to record approxi-
mately $14.5 million of stock option compensation costs and
reduced operating profit margins by 45 basis points in 2006
compared with 2005. Operating profit margin comparisons for
2006 compared to 2005 are also negatively impacted by
35 basis points related to gains on sale of a business and the
collection of a previously reserved note receivable during 2005
and were positively impacted by 65 basis points related to
a fourth quarter 2005 loss from the settlement of patent
infringement litigation.
The ongoing application of the Danaher Business System
in each of the segment’s businesses, and the segment’s low-
cost
region sourcing and production initiatives, are both
expected to further improve operating margins at both existing
and newly acquired businesses in the segment in future periods.
Overview of Businesses within Industrial
Technologies Segment
M O T I O N . Sales in the Company’s motion businesses, repre-
senting approximately 33% of segment sales in 2006,
increased approximately 6% over 2005. Sales from existing
businesses accounted for 5% growth; acquisitions accounted
for approximately 0.5% growth and currency translation con-
tributed growth of 0.5%.
Sales from existing businesses increased from 2005 levels
due primarily to broad based growth across the standard and
custom motor, drive and controls lines. This growth was some-
what offset by softness in certain technology end markets. The
business also experienced continued growth in sales of its linear
products during 2006.
P R O D U C T I D E N T I F I C A T I O N . The product identification busi-
nesses accounted for approximately 27% of segment sales in
2006. Sales from the Company’s product identification busi-
nesses increased 3.5% in 2006 compared to 2005. Existing
businesses provided 2.5% growth. Favorable currency impacts
accounted for approximately 1% growth. Acquisitions had a
negligible impact on growth for 2006.
The increase in sales is due primarily to the increase in
sales of laser and thermal transfer overlay equipment as well as
sales of consumables and services in North America and
Europe. These increases in sales were offset by the completion
of several large United States Postal Service (“USPS”) projects
in the first half of 2006 at both AccuSort and Videojet.
F O C U S E D N I C H E B U S I N E S S E S . The segment’s niche busi-
nesses in the aggregate showed 11.5% sales growth in 2006
compared to 2005.
This growth was primarily driven by strong sales growth
from existing businesses in the Company’s sensors and controls
and aerospace and defense businesses, and to a lesser extent
in the Company’s power quality businesses.
2005 Compared to 2004
Sales of the Industrial Technologies segment increased 11.0%
in 2005 over 2004. Sales from existing businesses increased
due primarily to sales growth in the product identification and
aerospace and defense businesses. Sales from existing busi-
nesses for the Company’s motion businesses were flat during
2005 compared to 2004. Price increases, which are included as
a component of sales from existing businesses, contributed less
than 1% to overall sales growth compared to 2004. The first
quarter 2005 acquisition of Linx Printing Technologies PLC
together with several other smaller acquisitions in 2005
accounted for a 6.0% increase in segment sales. The impact of
currency translation in the year was negligible.
Operating profit margins for the segment were 14.7% in
2005 including the effect of a $15.5 million charge (0.5%) to
settle litigation associated with activities of a business that
occurred prior to the Company’s ownership of the business.
Under U.S. generally accepted accounting principles, the impact
of this settlement is required to be accounted for in 2005 since
the settlement occurred after December 31, 2005 but before
the release of the 2005 financial statements. Operating profit
margins were 14.6% in 2004. The improvements in operating
profit margins for the year reflect additional leverage from sales
growth; on-going cost reductions associated with our Danaher
Business System initiatives completed during 2004 and 2005,
primarily within the Company’s motion businesses; and margin
improvements in businesses acquired in prior years, which typi-
cally have higher cost structures than the Company’s existing
operations. Operating margin also benefited from a $4.6 million
pre-tax gain on the sale of a small business which occurred in
the second quarter of 2005. These positive impacts were partly
offset by a $5 million impairment charge recorded in the third
25
quarter of 2005 related to a minority investment; the dilutive
effects of operating margins from businesses recently acquired;
and higher expense levels to support strategic growth and
restructuring initiatives, primarily in the product identification
and motion businesses.
Overview of Businesses within Industrial
Technologies Segment
M O T I O N . Sales in the Company’s motion businesses, represent-
ing approximately 34% of segment sales in 2005,
increased
approximately 2.5% compared to the same period of 2004. Sales
from existing businesses were flat compared with prior year levels;
acquisitions accounted for approximately 2.5% growth in sales and
the impact of currency translation was negligible.
Sales from existing businesses slowed from strong 2004
levels. The business continued to experience strength in its
electric vehicle product line, although at lower growth rates than
experienced in 2004, as well as growth in the aviation and
defense market. In addition, the elevator end-market showed
continued strength in 2005. However, the business experi-
enced softness in the technology and electronic assembly end
markets in 2005.
P R O D U C T I D E N T I F I C A T I O N . The product identification busi-
nesses accounted for approximately 28% of segment sales in
2005. Sales from the Company’s product identification busi-
nesses increased 26.0% in 2005 compared to 2004. Existing
businesses provided 9.5% growth. Acquisitions accounted for
16.0% growth, and favorable currency impacts accounted for
approximately 0.5% growth.
Sales of marking systems equipment and related service
within the Videojet business for 2005 increased at mid-single
digit rates over 2004. This marking systems growth primarily
resulted from strength in the North American, China and Latin
American markets. The Company also continued to see growth
in both its laser product offerings and thermal transfer overlay
product offerings. The Company’s increased sales and market-
ing efforts implemented earlier in 2005 also contributed to this
growth. In addition, growth in sales from existing operations for
2005 were driven by strong systems installation sales within the
Accu-Sort scanning business, particularly sales to the United
States Postal Service (USPS).
F O C U S E D N I C H E B U S I N E S S E S . The segment’s niche busi-
nesses in the aggregate showed 10.0% sales growth in 2005
compared to 2004. Growth in the existing businesses was pri-
marily driven by sales growth from the Company’s aerospace
and defense businesses, principally the electro-optical and
safety product lines as well as strength in the Company’s power
quality businesses. These improvements were partially offset by
slight declines in the Company’s sensors and controls business
due to a slowing technology market and more difficult compari-
sons with the business’ 2004 results which were strong by
historical standards. 2005 sales were negatively impacted by
1.0% due to the sale of a small business in June 2005 for which
previously reported sales have not been restated.
26
Tools & Components
The Tools & Components segment consists of one strategic
line of business, mechanics hand tools, and four focused niche
businesses: Delta Consolidated Industries, Hennessy Indus-
tries, Jacobs Chuck Manufacturing Company and Jacobs
Vehicle Systems.
Tools & Components Selected Financial Data
For the years ended December 31
($ in millions)
2006
2005
2004
Sales
Operating profit
Operating profit as a
% of sales
$1,350.8
194.1
$1,294.5
199.3
$1,306.3
198.3
14.4%
15.4%
15.2%
Components of Sales Growth 2006 vs. 2005 2005 vs. 2004
Existing businesses
Divestiture
Currency exchange rates
Total
4.5%
0.0%
0.0%
4.5%
4.0%
(5.0%)
0.0%
(1.0%)
2006 Compared to 2005
Sales from existing businesses contributed substantially all of
the growth for the segment in 2006, including approximately
1.5% growth due to price increases that
the Company
implemented largely as a result of cost increases in steel and
other commodities.
Mechanics hand tools sales, representing approximately
70% of segment sales, grew 5% in 2006 compared to 2005.
The sales growth was driven primarily by the group’s Matco busi-
ness which achieved high-single digit growth during 2006
driven by increases in both the number of distributors and their
average purchase levels. The retail mechanics’ hand tools busi-
ness also grew in the second half of 2006 compared to the sec-
ond half of 2005 as sell-through at Sears, a major customer of
the segment, improved from prior year levels. The business con-
tinues to experience growth with its other retail customers as
well as expanding markets for the business’ products in China.
The segment’s niche businesses experienced mid-single digit
sales growth for 2006 compared to 2005 as strength in the
truck box and engine retarder businesses was partially offset by
weakness in the chuck business.
Operating profit margins for the segment were 14.4%
in 2006 compared to 15.4% in 2005.
Implementation of
SFAS 123R in the first quarter of 2006 reduced segment oper-
ating profit by approximately $6 million in 2006 as compared to
2005, negatively impacting year-over-year operating margins
by 45 basis points. The Company also incurred costs associated
with exiting a small product line during the second half of 2006
which reduced 2006 operating profit margins by approximately
30 basis points. Operating profit margins also declined during
2006 due to lower margin products accounting for a larger
proportion of sales within the segment as well as due to higher
overall freight costs. Finally, year-over-year operating margin
comparisons were negatively impacted by approximately 40
basis points as a result of a $5.3 million ($3.9 million after taxes)
gain on the sale of real estate in 2005. The adverse impacts on
operating margins described above were offset somewhat by
the impact of leverage from higher sales levels, including the
pricing actions implemented in 2006, as well as the benefit of
restructuring actions taken in 2005.
The ongoing application of the Danaher Business System
in each of the segment’s businesses and the Company’s low-
cost region sourcing and production initiatives are all expected
to further improve segment operating margins in future periods.
Certain regulatory requirements affecting the end markets
served by the Company’s engine retarder business accelerated
customer purchases to 2006 which will adversely impact
segment sales volumes in 2007.
2005 Compared to 2004
Sales in the Tools & Components segment decreased 1.0% in
2005 compared to 2004. The 2005 period sales were nega-
tively impacted by 5.0% on a year-over-year basis due to the
sale of a small business in late 2004 for which previously
reported sales have not been restated. Sales from existing busi-
nesses contributed approximately 4.0% growth for the segment
in 2005,
including approximately 2.0% growth due to price
increases that the Company implemented as a result of cost
increases in steel and other commodities. There were no acqui-
sitions in this segment during 2004 or 2005 and currency
impacts on sales were negligible in both periods.
Mechanics’ Hand Tools sales, representing approximately
two-thirds of segment sales in 2005, grew approximately 4.0%
in 2005, compared with 2004. The sales growth was driven pri-
marily by sales growth in the group’s high-end mobile tool dis-
tribution business which experienced low-double digit growth
during the year driven by increases in both the number of dis-
tributors and their average purchase levels. Mechanics’ Hand
Tools also experienced significant growth in 2005 in the China
market. The business’ retail mechanics’ hand tools business
declined at low-single digit levels during 2005 compared with
2004. The integration of Sears and Kmart, a major customer of
the segment, tempered the business’ 2005 sales growth. The
segment’s niche businesses also experienced mid-single digit
growth during 2005 due primarily to strength in the truck box
and engine retarder businesses.
Operating profit margins for the segment were 15.4% in
2005 compared to 15.2% in 2004. The improvement in oper-
ating profit margins for 2005 primarily relates to the pricing ini-
tiatives implemented to offset a portion of the steel and other
commodity cost increases experienced beginning in 2004; the
impact of higher sales levels and the impact of Danaher Busi-
ness System cost reduction programs implemented in 2004
and 2005; and the impact of a gain recorded on the sale of real
estate totaling $5.3 million ($3.9 million after taxes) during the
first quarter of 2005. These improvements more than offset the
incremental costs associated with closing one of the segment’s
manufacturing facilities. The Company incurred approximately
$11 million in costs associated with this plant closure in 2005,
which provided minimal benefit to operating margins in 2005.
Operating Expenses
For the years ended December 31
($ in millions)
27
Gross Profit
For the years ended December 31
($ in millions)
2006
2005
2004
Sales
Cost of sales
Gross profit
Gross profit margin
$9,596.4
5,353.0
4,243.4
44.2%
$ 7,984.7
4,539.7
$3,445.0
43.1%
$6,889.3
3,996.6
$2,892.7
42.0%
Gross profit margins for the year ended December 31, 2006
benefited from leverage on increased sales volume,
the
on-going cost improvements in existing business units driven by
our Danaher Business System processes and low-cost region
initiatives, generally higher gross profit margins in businesses
recently acquired, and cost reductions in recently acquired busi-
ness units. Increases in selling prices to offset some of the
increases in cost and surcharges related to steel and other com-
modity purchases also contributed to gross profit improvement.
These improvements were partially offset by a change in mix to
certain lower margin businesses including the Gilbarco Veeder-
Root business and sales to the United States Postal Service in
the product identification business. In addition, the Company
recorded a loss on a product development venture in the first
quarter of 2006 and incurred higher initial product costs asso-
ciated with the Sybron Dental acquisition in the second quarter
of 2006, which further reduced gross margins for the year
ended December 31, 2006. Higher raw material costs or any
significant slowdown in the economy could adversely affect
gross profit margins in future periods.
Gross profit margins for 2005 improved 110 basis points
to 43.1% from 42.0% in 2004. This improvement resulted pri-
marily from generally higher gross profit margins in businesses
recently acquired,
leverage on increased sales volume,
on-going cost improvements in existing business units driven by
our DBS processes and low-cost region initiatives, and cost
reductions in recently acquired business units. Partly offsetting
these improvements were the costs associated with closing a
manufacturing facility in the Tools & Components segment.
Sales
Selling, general and
administrative
expenses
SG&A as a % of sales
2006
2005
2004
$9,596.4
$7,984.7
$6,889.3
2,741.8
28.6%
2,175.8
27.2%
1,795.7
26.1%
The year-over-year increase in selling, general and administra-
tive expenses is due primarily to increases in selling, general and
administrative expenses associated with recently acquired
businesses (principally Leica, Sybron Dental and Vision) and
their higher relative operating expense structures, additional
spending to fund growth opportunities throughout the Com-
pany, and the implementation of SFAS 123R. Implementation of
SFAS 123R in 2006 increased operating expenses by $55 mil-
lion in 2006 and contributed a 60 basis point increase in selling,
general and administrative expenses as a percentage of sales
in 2006 compared to 2005. In addition, in 2006 the Company
expensed approximately $6.5 million of in-process research
and development related to the Vision acquisition. The Company
also recorded a $4.5 million impairment of a minority interest in
a medical technologies company in the first quarter of 2006,
which increased 2006 selling, general and administrative
expenses as a percentage of sales by approximately 5 basis
points compared to 2005. These items were partially offset by
increased leverage from higher sales levels in 2006.
Interest Costs and Financing Transactions
For a description of the Company’s outstanding indebtedness,
please refer to “—Liquidity and Capital Resources—Financing
Activities and Indebtedness” below.
Interest expense of $79.8 million in 2006 was approxi-
mately $34.9 million higher than 2005. The increase in interest
expense in 2006 is primarily due to higher debt levels during the
year, primarily due to borrowings incurred to fund the acquisi-
tions of Sybron Dental and Vision. Interest expense for 2005
was lower than the prior year by approximately $10.1 million.
The decrease in interest expense in 2005 compared to 2004
was due primarily to lower debt levels during the year as a result
of the repayment of the Company’s 6.25% Eurobond notes and
to a lesser extent, lower borrowing rates on new borrowings
during the period.
Interest income of $8.0 million, $14.7 million and $7.6 million
was recognized in 2006, 2005 and 2004, respectively. Average
invested cash balances decreased during 2006 compared to
2005 due to employing cash balances to complete several acqui-
sitions in 2005 and 2006, to finance repurchases of the Compa-
ny’s outstanding common stock in the second half of 2005 and to
repay the previously outstanding Eurobonds in July 2005. In addi-
tion, 2005 interest income reflects the collection of $4.6 million of
28
interest on a note receivable which had not previously been
recorded due to collection risk (see Note 2 to the Consolidated
Financial Statements for additional information).
Income Taxes
The Company’s effective tax rate of 22.4% for 2006 was
4.9 percentage points lower than the effective tax rate for 2005.
The Company’s effective income tax rate for 2006 benefited by
$69 million, or $0.21 per diluted share, as a result of the reduc-
tion of valuation allowances related to foreign tax credit carry-
forwards that are now expected to be realized, the favorable
resolution of examinations of certain previously filed returns
which resulted in the reduction of previously provided tax
reserves and the impact of a change in German tax law which
entitles the Company to cash payments in lieu of previously held
unrecognized tax credits. These positive impacts were partially
mitigated by a higher effective tax rate applicable to the second
quarter 2006 gain on the sale of shares of First Technology, plc
(see Note 2 to the Notes to Consolidated Financial Statements)
which increased the overall provision by $1.5 million compared
to what would have been incurred using the Company’s overall
effective tax rate. The effective tax rate for 2007 is expected to
be approximately 27%.
The 2005 effective tax rate of 27.3% was 2.2 percentage
points lower than the 2004 effective rate, mainly due to the
effect of a higher proportion of foreign earnings in 2005
compared to 2004. The Company also resolved examinations of
certain previously filed U.S. and international tax returns and
provided additional reserves for other matters arising during the
third quarter of 2005. Resolution of these matters resulted in
a small benefit
from the reversal of previously provided
tax reserves.
The Company’s effective tax rate can be affected by
changes in the mix of earnings in countries with differing statu-
tory tax rates (including as a result of business acquisitions and
dispositions), changes in the valuation of deferred tax assets
and liabilities, the results of audits and examinations of previ-
ously filed tax returns (as discussed below) and changes in tax
laws. The tax effect of significant unusual items or changes in
tax regulations is reflected in the period in which they occur. The
Company’s effective tax rate for 2006 differs from the United
States federal statutory rate of 35% primarily as a result of lower
effective tax rates on certain earnings from operations outside
of the United States. No provisions for United States income
taxes have been made with respect to earnings that are planned
to be reinvested indefinitely outside the United States. The
amount of United States income taxes that may be applicable
to such earnings is not readily determinable given the various tax
planning alternatives the Company could employ should it
decide to repatriate these earnings. As of December 31, 2006,
the total amount of earnings planned to be reinvested indefi-
nitely outside the United States was approximately $3.4 billion.
The amount of income taxes the Company pays is subject to
ongoing audits by federal, state and foreign tax authorities, which
often result in proposed assessments. Management performs a
comprehensive review of its global tax positions on a quarterly
basis and accrues amounts for potential tax contingencies. Based
on these reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax years
subject to tax audit, reserves are adjusted as necessary. However,
future results may include favorable or unfavorable adjustments to
the Company’s estimated tax liabilities in the period the assess-
ments are determined or resolved. Additionally, the jurisdictions in
which the Company’s earnings and/or deductions are realized may
differ from current estimates.
In July 2006, the FASB issued FASB Interpretation No. 48
(“FIN 48) “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109”, to clarify certain
including
aspects of accounting for uncertain tax positions,
issues related to the recognition and measurement of those tax
positions. This interpretation is effective for fiscal years begin-
ning after December 15, 2006. The Company adopted FIN 48
as of January 1, 2007, as required. While the Company is con-
tinuing to evaluate the impact of this Interpretation and guid-
ance on its application, the Company currently estimates the
adoption of FIN 48 will reduce the amount recorded by the
Company for uncertain tax positions by approximately $60 to
$80 million. This reduction will be recorded as an increase to
opening retained earnings as of January 1, 2007.
Inflation
Inflation did not significantly impact the Company’s overall
results of operations in either 2006 or 2005. The Company has
experienced cost increases during the past two years in the
costs of steel and petroleum-based products, and with respect
to the past year, non-ferrous metals as well. The Company is
passing along certain of these cost increases to customers.
Financial Instruments and Risk Management
The Company is exposed to market risk from changes in interest
rates, foreign currency exchange rates and credit risk, which
could impact its results of operations and financial condition.
The Company addresses its exposure to these risks through
its normal operating and financing activities. In addition, the
Company’s broad-based business activities help to reduce the
impact that volatility in any particular area or related areas may
have on its operating earnings as a whole.
Interest Rate Risk
The fair value of the Company’s fixed-rate long-term debt is
sensitive to changes in interest rates. Sensitivity analysis is one
technique used to evaluate this potential impact. Based on a hypo-
thetical, immediate 100 basis-point increase in interest rates at
December 31, 2006, the fair value of the Company’s fixed-rate
long-term debt would decrease by approximately $35 million. This
methodology has certain limitations, and these hypothetical gains
or losses would not be reflected in the Company’s results of opera-
tions or financial condition under current accounting principles. In
January 2002, the Company entered into two interest rate swap
agreements for the term of the $250 million aggregate principal
amount of 6.1% notes due 2008 having an aggregate notional
29
principal amount of $100 million whereby the effective interest
rate on $100 million of these notes is the six month LIBOR rate
plus approximately 0.425%. In accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities”, as
amended, the Company accounts for these swap agreements as
fair value hedges. These instruments qualify as “effective” or “per-
fect” hedges. Other than the above noted swap arrangements,
there were no material derivative financial instrument transactions
during any of the periods presented. Additionally, the Company
does not have significant commodity contracts or other derivatives.
Exchange Rate Risk
The Company has a number of manufacturing sites throughout
the world and sells its products globally. As a result, it is exposed
to movements in the exchange rates of various currencies
against the United States Dollar and against the currencies of
other countries in which it manufactures and sells products and
services. In particular, the Company has more sales in European
currencies than it has expenses in those currencies. Therefore,
when European currencies strengthen or weaken against the
U.S. Dollar, operating profits are increased or decreased,
respectively. The Eurobond Notes described below, as well as
the European component of the commercial paper program
which as of December 31, 2006, had outstanding borrowings
equivalent to $1,446.9 million, provides a natural hedge to a
portion of the Company’s European net asset position.
Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and tem-
porary investments, interest rate swap agreements and trade
accounts receivable. The Company is exposed to credit losses
in the event of nonperformance by counter parties to its financial
instruments. The Company anticipates, however, that counter
parties will be able to fully satisfy their obligations under these
instruments. The Company places cash and temporary invest-
ments and its interest rate swap agreements with various high-
quality financial institutions throughout the world, and exposure
is limited at any one institution. Although the Company does not
obtain collateral or other security to support these financial
instruments, it does periodically evaluate the credit standing of
the counter party financial institutions. In addition, concentra-
tions of credit risk arising from trade accounts receivable are
limited due to the diversity of the Company’s customers. The
Company performs ongoing credit evaluations of its customers’
financial conditions and obtains collateral or other security
when appropriate.
30
Liquidity and Capital Resources
Overview of Cash Flows and Liquidity
Total operating cash flows
Purchases of property, plant and equipment
Cash paid for acquisitions
Other sources
Net cash used in investing activities
Proceeds from the issuance of common stock
Proceeds (repayments) of borrowings, net
Dividends paid
Purchase of treasury stock
Net cash used in financing activities
For the years ended December 31
($ in millions)
2006
2005
2004
$ 1,547.3
$1,203.8
$ 1,033.2
(137.7)
(2,656.0)
24.3
(2,769.4)
98.4
1,145.0
(24.6)
—
1,218.8
(121.2)
(885.1)
40.9
(965.4)
59.9
(292.2)
(21.6)
(257.7)
(511.6)
(115.9)
(1,591.7)
74.0
(1,633.6)
45.9
(66.3)
(17.7)
—
(38.1)
— Operating cash flow, a key source of the Company’s liquidity,
increased $343.5 million, or approximately 28.5% as com-
pared to 2005. Earnings growth contributed $224.2 million to
the increase in operating cash flow in 2006 compared to
2005, and non-cash stock compensation expense and
increases in depreciation and amortization also positively
impacted cash flow. Non-cash reductions of previously pro-
vided tax reserves positively impacted net earnings but
adversely impacted the comparison of operating cash flow as
a percentage of net earnings. Operating working capital was
a net source of cash flow in 2006 despite higher sales levels
as overall operating working capital turns improved from the
levels experienced during 2005.
— As of December 31, 2006, the Company held $317.8 mil-
lion of cash and cash equivalents.
— Acquisitions constituted the most significant use of cash in
all periods presented. The Company acquired 11 compa-
nies and product lines during 2006 for total consideration
of $2,656.0 million in cash, including transaction costs and
net of cash acquired.
— Danaher financed the 2006 acquisitions of Sybron Dental
and Vision primarily with proceeds from the issuance of
commercial paper and to a lesser extent from available
cash. As of December 31, 2006, the Company had approxi-
mately $866.8 million in borrowings outstanding under the
commercial paper program of which $80 million was
denominated in U.S. dollars and $786.8 million was
denominated in Euros (E596 million).
— During the second quarter of 2006, the Company entered
into an unsecured $1.5 billion multicurrency revolving
credit facility and a separate, unsecured $700 million
multicurrency revolving credit facility, both of which were
available to backstop the Company’s commercial paper
program. The Company terminated the $700 million facility
on October 11, 2006, which has the practical effect of
reducing from $2.2 billion to $1.5 billion the maximum
amount of commercial paper that the Company can issue
under the commercial paper program.
— On July 21, 2006, a financing subsidiary of the Company
issued E500 million ($630 million) of 4.5%, guaranteed
notes due July 22, 2013, with a fixed re-offer price of
99.623 (the “Eurobond Notes”) in a private placement out-
side the U.S. Payment obligations under these Eurobond
Notes are guaranteed by the Company. The net proceeds
of the offering, after the deduction of underwriting commis-
sions but prior to the deduction of other issuance costs,
were approximately E496 million ($627 million) and were
used to pay down a portion of the Company’s outstanding
commercial paper used to finance the Sybron Dental acqui-
sition and for general corporate purposes.
Operating Activities
The Company continues to generate substantial cash from
operating activities and remains in a strong financial position,
with resources available for reinvestment in existing businesses,
strategic acquisitions and managing its capital structure on a
short and long-term basis. Cash flows from operating activities
can fluctuate significantly from period to period as working capi-
tal needs, the timing of payments for items such as income
taxes, pension funding decisions and other items impact
reported cash flows.
Operating cash flow, a key source of the Company’s liquid-
ity, was approximately $1.5 billion for 2006, an increase of
$343.5 million, or approximately 28.5% as compared to 2005.
Earnings growth contributed $224.2 million to the increase in
operating cash flow in 2006 compared to 2005. Included in
earnings growth is a non-cash benefit of approximately $69 mil-
lion from the reduction of tax reserves and a change in German
tax law which entitles the Company to cash payments in lieu of
previously held unrecognized tax credits. Because this is a non-
cash benefit to net earnings, it adversely impacts the compari-
son of operating cash flow as a percentage of net earnings.
The Company also recorded increased stock option expense of
$55 million in 2006 as required by SFAS 123R—Share Based
Payments. Because this expense adversely impacts net earn-
ings but does not require the use of cash, it positively impacts
the comparison of operating cash flow as a percentage of net
earnings. Operating cash flows during 2006 also benefited
from increases in non-cash depreciation and amortization
charges of approximately $40 million compared to 2005. These
increases in depreciation and amortization primarily related to
recent acquisitions. Operating working capital, which the Com-
pany defines as accounts receivable plus inventory less
accounts payable, also contributed favorably to 2006 operating
cash flow but at lower levels than in the comparable 2005
period, due primarily to less cash flow generation from accounts
payable in 2006 compared to 2005.
In connection with its acquisitions, the Company records
appropriate accruals for the costs of closing duplicate facilities,
severing redundant personnel and integrating the acquired
businesses into existing Company operations. Cash flows from
operating activities are reduced by the amounts expended
against the various accruals established in connection with
each acquisition.
Investing Activities
Cash flows relating to investing activities consist primarily of
cash used for acquisitions, capital expenditures and cash flows
from divestitures of businesses or assets. Net cash used in
investing activities was $2,769 million in 2006 compared to
approximately $965 million in 2005. Gross capital spending
increased $16.5 million in 2006 from 2005 levels to $137.7 mil-
lion, due primarily to capital spending relating to new acquisi-
tions, and increased spending related to investments in the
Company’s low-cost region sourcing initiatives, new products
and other growth opportunities. Capital expenditures are
made primarily to support product development, for increasing
capacity, replacement of equipment and improving information
technology systems.
Net cash used in investing activities was $965 million in
2005 compared to approximately $1.6 billion in 2004. Capital
spending increased $5 million in 2005 from 2004 levels to
$121 million. In 2007, the Company expects capital spending of
approximately $175 to $200 million. Disposals of fixed assets
yielded approximately $10 million and $19 million of cash
proceeds for 2006 and 2005, respectively.
As discussed below, the Company completed several busi-
ness acquisitions and divestitures during 2006, 2005 and 2004.
All of the acquisitions during this period have resulted in the recog-
nition of goodwill in the Company’s financial statements. This
goodwill typically arises because the purchase prices for these
businesses reflect the competitive nature of the process by which
the businesses are acquired and the complementary strategic fit
and resulting synergies these businesses are expected to bring to
existing operations. For a discussion of other factors resulting in
the recognition of goodwill see Notes 2 and 5 to the accompanying
Consolidated Financial Statements.
31
2006 Acquisitions
In May 2006, the Company acquired all of the outstanding
shares of Sybron Dental for total consideration of approximately
$2 billion, including transaction costs and net of $94 million of
cash acquired, and assumed approximately $182 million of
debt. Substantially all of the assumed debt was subsequently
repaid or refinanced prior to December 31, 2006. Danaher
financed the acquisition of shares and the refinancing of the
assumed debt primarily with proceeds from the issuance of
commercial paper, as discussed under “Financing Activities and
Indebtedness” below, and to a lesser extent from available cash.
In addition, in the last quarter of 2006 and first quarter of
2007, the Company acquired all of the outstanding shares of
Vision for an aggregate price of approximately $520 million,
including transaction costs and net of approximately $122 mil-
lion of cash acquired and assumed $1.5 million of debt. The
Company financed the transaction through a combination of
available cash and the issuance of commercial paper. Vision,
based in Australia, manufactures and markets automated
instruments, antibodies and biochemical reagents used for
biopsy-based detection of cancer and infectious diseases, and
had revenues of approximately $86 million in its last completed
fiscal year. Management believes that the pairing of Vision with
the Company’s existing life science instrumentation business,
Leica, will significantly broaden the Company’s product
offerings in the growing anatomical pathology market and
expand the sales and growth opportunities for both the Leica
and Vision businesses.
Total consideration for the other nine businesses acquired
during 2006 was approximately $213 million in cash, including
transaction costs and net of cash acquired. In general, each
company is a manufacturer and assembler of environmental
instrumentation, medical equipment or industrial products, in
the market segments of electronic test, critical care diagnostics,
water quality, product identification and sensors and controls.
These companies were all acquired to complement existing
units of either the Professional Instrumentation, Medical Tech-
nologies or Industrial Technologies segments. The aggregate
annual sales of these nine acquired businesses were approxi-
mately $140 million at the dates of their respective acquisitions.
In the first half of 2006, the Company purchased and sub-
sequently sold shares of First Technology plc, a U.K.-based
public company, in connection with the Company’s unsuccess-
ful bid to acquire First Technology. First Technology also paid the
Company a break-up fee of approximately $3 million. During the
second quarter of 2006 the Company recorded a pre-tax gain
of approximately $14 million ($8.9 million after-tax, or approxi-
mately $0.03 per diluted share) in connection with these mat-
ters, net of related transaction costs, which is included in “other
expense (income), net” in the accompanying Consolidated
Condensed Statement of Earnings.
Disposals of fixed assets and land yielded approximately
$10 million of cash proceeds during 2006 due to the sale of
three parcels of real estate and miscellaneous equipment. Dis-
posals of fixed assets yielded approximately $19 million of cash
proceeds during 2005, primarily related to a sale of a building
which generated a pre-tax gain $5.3 million in 2005 which was
32
included as a component of “other expense (income), net” in the
accompanying Consolidated Statements of Earnings.
2005 Acquisitions
In the first quarter of 2005 the Company acquired all of the out-
standing shares of Linx Printing Technologies PLC, a publicly-
held U.K based coding and marking business, for $171 million
in cash, including transaction costs and net of cash acquired of
$2 million. Linx complements the Company’s product identifica-
tion businesses and had annual revenue of approximately
$93 million in 2004.
In August 2005, the Company acquired all of the outstand-
ing shares of German-based Leica Microsystems AG, for an
aggregate purchase price of E210 million in cash, including
transaction costs and net of cash acquired of E12 million and
the assumption and repayment at closing of E125 million out-
standing Leica debt ($429 million in aggregate as of the date
of the acquisition). The Company funded this acquisition and the
repayment of debt assumed using available cash and through
borrowings under uncommitted lines of credit
totaling
$222 million, which have subsequently been repaid. Leica
complements the Company’s medical technologies business
and had annual revenues of approximately $540 million in 2004
(excluding the approximately $120 million of revenue attribut-
able to the semiconductor business that has been divested, as
described below).
In September 2005, the Company also completed the sale
of Leica’s semiconductor equipment business which was held
for sale at the time of the acquisition. This business had histori-
cally operated at a loss. Proceeds from the sale have been
reflected as a reduction in the purchase price for Leica in the
accompanying Consolidated Statement of Cash Flows. Operat-
ing losses for this business for the period from acquisition to dis-
position totaled approximately $1.3 million and are reflected in
“Other expense (income), net” in the accompanying Consoli-
dated Statement of Earnings.
In addition to Linx and Leica, the Company acquired
11 smaller companies and product lines during 2005 for total
including transaction
consideration of $285 million in cash,
costs and net of cash acquired. In general, each company is a
manufacturer and assembler of environmental or instrumenta-
tion products,
technologies,
in markets such as medical
electronic test, sensors and controls, environmental, product
identification, aerospace and defense and motion. These com-
panies were all acquired to complement existing units of either
the Professional
Instrumentation, Medical Technologies or
Industrial Technologies segments. The aggregated annual sales
of these 11 acquired businesses at the time of their respective
acquisitions were approximately $260 million.
In June 2005, the Company divested one insignificant
business that was reported as a continuing operation within the
Industrial Technologies segment for aggregate proceeds of
$12.1 million in cash net of related transaction expenses. Sales
related to this business included in the Company’s results for
2005 were $7.5 million. The Company recorded a pre-tax gain
of $4.6 million on the divestiture which is reported as a compo-
nent of “Other expense (income), net” in the accompanying
Consolidated Statement of Earnings. Net cash proceeds
received on the sale are included in “Proceeds from Divesti-
tures”
in the accompanying Consolidated Statement of
Cash Flows.
In June 2005, the Company collected $14.6 million in full
payment of a retained interest that was in the form of a $10 mil-
lion note receivable and an equity interest arising from the sale
of a prior business. The Company had recorded this note net of
applicable allowances and had not previously recognized inter-
est income on the note due to uncertainties associated with
collection of the principal balance of the note and the related
interest. As a result of the collection, the Company recorded
$4.6 million of interest income related to the cumulative interest
received on this note in the second quarter of 2005. In addition,
the Company recorded a pre-tax gain of $5.3 million related to
collection of the note balance in the second quarter of 2005
which has been recorded as a component of “Other expense
(income), net” in the accompanying Consolidated Statement of
Earnings. Cash proceeds from the collection of the principal bal-
ance of $10 million are included in “Proceeds from Divestitures”
in the accompanying Consolidated Statement of Cash Flows.
2004 Acquisitions
In January 2004, the Company acquired all of the share capital
of Radiometer S/A for $684 million in cash (net of $77 million
in acquired cash), including transaction costs. In addition, the
Company assumed $66 million of debt in connection with the
acquisition. Radiometer had total annual sales of approximately
$300 million at the time of acquisition.
In May 2004, the Company acquired all of the outstanding
shares of Kaltenbach & Voight Gmbh (KaVo) for E350 million
($412 million) in cash, including transaction costs and net of
$45 million in acquired cash. KaVo, headquartered in Biberach,
Germany, with 2003 revenues of approximately $450 million, is
a worldwide leader in the design, manufacture and sale of dental
technology, including hand pieces, treatment units and diagnos-
tic systems and laboratory equipment.
In November 2004, the Company acquired all of the out-
standing shares of Trojan Technologies, Inc. for aggregate con-
sideration of $185 million in cash, including transaction costs
and net of $23 million in acquired cash. In addition, the Company
assumed $4 million of debt in connection with the acquisition.
Trojan is a leader in the ultraviolet disinfection market for drink-
ing and wastewater applications and had annual revenues of
approximately $115 million at the time of acquisition.
In addition to Radiometer, KaVo and Trojan, the Company
acquired ten smaller companies and product lines during 2004
for total consideration of $311 million in cash, including trans-
action costs and net of cash acquired. In general, each company
is a manufacturer and assembler of instrumentation products, in
markets such as medical technologies, electronic test, motion,
environmental, product identification, sensors and controls, and
aerospace and defense. These companies were all acquired to
complement existing businesses within the Professional Instru-
mentation segment, or in connection with the establishment of
the Medical Technologies segment. The aggregate annual sales
of these acquired businesses as of the respective dates of
acquisition were approximately $280 million.
In addition, the Company sold a business that was part of
the Tools & Components segment during 2004. This business
was insignificant to reported sales and earnings. Proceeds from
this sale have been included in proceeds from divestitures in the
accompanying Consolidated Statements of Cash Flows. The
pre-tax gain on the sale of $1.5 million ($1.1 million after tax)
is included in “Other expense (income), net” in the accompany-
ing Consolidated Statements of Earnings.
Recent Acquisition Developments
Subsequent to December 31, 2006, the Company completed
the acquisition of five smaller companies and product lines for
total consideration of $206 million in cash, including transaction
costs and net of cash acquired. These companies were all
acquired to complement existing businesses. Two of the busi-
nesses are manufacturers of dental imaging products and will
be part of the Company’s Medical Technologies segment. The
other businesses complement the Company’s electronic test
and environmental businesses in the Professional Instrumenta-
tion segment. The aggregate annual sales of these acquired
businesses as of the respective dates of acquisition were
approximately $91 million.
Financing Activities and Indebtedness
Financing cash flows consist primarily of borrowings and repay-
ments of indebtedness, repurchases of common stock and
payments of dividends to shareholders. Financing activities
provided cash of $1,219 million during 2006 compared to
$512 million of cash used during the comparable period of
2005. The increase in cash generated from financing activities
was primarily due to commercial paper borrowings used to
finance the acquisition of Sybron Dental and Vision, and the
issuance of $627 million (E496 million) private placement
Eurobond Notes, net of debt repayments and dividends paid
during 2006. Proceeds from the Eurobond Notes were used to
pay off a portion of the outstanding commercial paper and for
other general corporate purposes.
Total debt was $2,434 million at December 31, 2006
compared to $1,042 million at December 31, 2005. The Com-
pany’s debt financing as of December 31, 2006 was comprised
primarily of:
— $787 million of outstanding Euro denominated commercial
paper;
— $80 million of outstanding U.S. dollar denominated
commercial paper;
— $660 million (E500 million) 4.5% guaranteed Eurobond
Notes due July 22, 2013;
— $594 million of zero coupon Liquid Yield Option Notes due
2021 (“LYONs”);
— $250 million of 6.1% notes due 2008 (subject to the inter-
est rate swaps described above); and
— $63 million of other borrowings.
33
The Company primarily satisfies its short-term liquidity needs
through issuances of U.S. dollar and Euro commercial paper.
Under the Company’s U.S. and Euro commercial paper pro-
grams, the Company or its subsidiary may issue and sell unse-
cured, short-term promissory notes in aggregate principal
amount not to exceed $2.2 billion. The Company issued $2 bil-
lion of commercial paper in May 2006 and used the proceeds
principally to fund its acquisition of Sybron Dental. Subsequent
to May 2006, the Company has used available cash flow and the
proceeds from the Eurobond Note offering (see below) to
reduce outstanding borrowings under the commercial paper
programs. In November and December 2006, the Company
again utilized its commercial paper program to fund the acqui-
sition of Vision. As of December 31, 2006, $80 million remained
outstanding under the U.S. dollar commercial paper program
with an average interest rate of 5.34% and an average maturity
of 3 days and $787 million remained outstanding under the
Euro-denominated commercial paper program (E596 million)
with an average interest rate of 3.87% and an average maturity
of 64 days.
Credit support for the commercial paper programs is pro-
vided by an unsecured $1.5 billion multicurrency revolving credit
facility (the “Credit Facility”) which the Company entered into in
April 2006 to replace two existing $500 million credit facilities.
The Credit Facility expires on April 25, 2011, subject to a one-
year extension option at the request of Danaher and with the
consent of the lenders. The Credit Facility can also be used for
working capital and other general corporate purposes. Interest
is based on either (1) a LIBOR-based formula, (2) a formula
based on the lender’s prime rate or on the Federal funds rate, or
(3) the rate of interest bid by a particular lender for a particular
loan under the Credit Facility.
In May 2006 the Company
and certain of its subsidiaries entered into an unsecured
$700 million multicurrency revolving credit facility (the “Second-
ary Credit Facility”) on terms substantially similar to those under
the Credit Facility that was also available to provide credit
support for the Company’s commercial paper and for working
capital and other general corporate purposes. The Company
terminated the Secondary Credit Facility on October 11, 2006,
which has the practical effect of reducing from $2.2 billion to
$1.5 billion the maximum amount of commercial paper that the
Company can issue under the commercial paper program. The
Company terminated the Secondary Credit Facility because
Company management believes that the $1.5 billion facility pro-
vides sufficient backstop for amounts that
the Company
believes will be issued under the commercial paper facility in the
foreseeable future, that additional credit would be available if
the Company were to decide to issue more than $1.5 billion of
commercial paper or otherwise need additional credit, and that
termination of the $700 million facility eliminates unnecessary
fees. There were no borrowings under either the Credit Facility
or the Secondary Credit Facility, or either of the terminated
credit facilities, during 2006.
On July 21, 2006, a financing subsidiary of the Company
issued the Eurobond Notes in a private placement outside the
U.S. Payment obligations under these Eurobond Notes are
guaranteed by the Company. The net proceeds of the offering,
34
after the deduction of underwriting commissions but prior to
the deduction of other issuance costs, were E496 million
($627 million) and have been used to pay down a portion of the
Company’s outstanding commercial paper and for general cor-
porate purposes.
In 2001, the Company issued $830 million (value at
maturity) in LYONs. The net proceeds to the Company were
$505 million, of which approximately $100 million was used to
pay down debt and the balance was used for general corporate
purposes, including acquisitions. The LYONs carry a yield to
maturity of 2.375% (with contingent
interest payable as
described below). Holders of the LYONs may convert each of
their LYONs into 14.5352 shares of Danaher common stock (in
the aggregate for all LYONs, approximately 12.0 million shares
of Danaher common stock) at any time on or before the maturity
date of January 22, 2021. As of December 31, 2006, the
accreted value of the outstanding LYONs was $49 per share,
which, at that date, was lower than the traded market value of the
underlying common stock issuable upon conversion. The Com-
pany may offer to redeem all or a portion of the LYONs for cash
at any time. Holders may require the Company to purchase all
or a portion of the notes for cash and/or Company common
stock, at the Company’s option, on January 22, 2011. The hold-
ers had a similar option to require the Company to purchase all
or a portion of the notes as of January 22, 2004, which resulted
in notes with an accreted value of $1.1 million being redeemed
by the Company for cash.
Under the terms of the LYONs, the Company will pay con-
tingent interest to the holders of LYONs during any six month
period commencing after January 22, 2004 if the average mar-
ket price of a LYON for a measurement period preceding such
six-month period equals 120% or more of the sum of the issue
price and accrued original issue discount for such LYON. The
amount of contingent interest to be paid is equal to the higher
of either 0.0315% percent of the bonds’ market value mea-
sured by its five day trading average price preceeding the record
date or the equivalent common stock dividend. Contingent inter-
est of approximately $0.5 million is payable for the six month
period from July 1, 2006 to December 31, 2006. Except for the
contingent interest described above, the Company will not pay
interest on the LYONs prior to maturity.
During the first quarter of 2006, the Company borrowed
$120 million under uncommitted lines of credit in connection
with the investment in the shares of First Technology noted
above and other matters. These borrowings, along with all bor-
rowings incurred in 2005 under uncommitted lines of credit
associated with the purchase of Leica, which totaled $177 mil-
lion as of December 31, 2005, were fully repaid in the first
quarter of 2006.
The $250 million of 6.1% notes due 2008 were issued in
October 1998 at an interest cost of 6.1%. The fair value of
the 2008 notes, after taking into account the interest rate
swaps discussed below,
is approximately $252 million at
December 31, 2006. In January 2002, the Company entered
into two interest rate swap agreements for the term of the notes
having an aggregate notional principal amount of $100 million
whereby the effective net interest rate on $100 million of the
Notes is the six-month LIBOR rate plus approximately 0.425%.
Rates are reset twice per year. At December 31, 2006, the net
interest rate on $100 million of the notes was 5.8% after giving
effect to the interest rate swap agreement. In accordance with
SFAS No. 133 (“Accounting for Derivative Instruments and
Hedging Activities”, as amended), the Company accounts for
these swap agreements as fair value hedges. These instru-
ments qualify as “effective” or “perfect” hedges.
On April 21, 2005, the Company’s Board of Directors autho-
rized the repurchase of up to 10 million shares of the Company’s
common stock from time to time on the open market or in privately
negotiated transactions. There is no expiration date for the Com-
pany’s repurchase program. The timing and amount of any shares
repurchased will be determined by the Company’s management
based on its evaluation of market conditions and other factors. The
repurchase program may be suspended or discontinued at any
time. Any repurchased shares will be available for use in connection
with the Company’s 1998 Stock Option Plan (or any successor
plan) and for other corporate purposes.
During 2005, the Company repurchased approximately
5 million shares of Company common stock in open market
transactions at an aggregate cost of $257.7 million. The repur-
chases were funded from available cash and from borrowings
under uncommitted lines of credit. There were no share repur-
chases under this program in 2006 and at December 31, 2006,
the Company had approximately 5 million shares remaining for
stock repurchases under the existing Board authorization. The
Company expects to fund any further repurchases using the
Company’s available cash balances or existing lines of credit.
The Company does not have any rating downgrade triggers
that would accelerate the maturity of a material amount of out-
standing debt. However, a downgrade in the Company’s credit
rating would increase the cost of borrowings under the Compa-
ny’s commercial paper program and credit facilities, and could
limit, or in the case of a significant downgrade, preclude the
Company’s ability to issue commercial paper. The Company’s
outstanding indentures and comparable instruments contain
customary covenants including for example limits on the incur-
rence of secured debt and sale/leaseback transactions. None
of these covenants are considered restrictive to the Company’s
operations and as of December 31, 2006, the Company was in
compliance with all of its debt covenants.
To benefit from the SEC Securities Offering Reform rules
applicable to well-known seasoned issuers, the Company filed
a shelf registration statement on Form S-3 with the SEC in July
2006, which became effective automatically, to register an inde-
terminate amount of debt securities, common stock, preferred
stock, warrants, depositary shares, purchase contracts and units
for future issuance. No securities have been issued off this shelf
registration statement. The new registration statement replaced
the Company’s prior, $1 billion shelf registration statement.
The Company declared a regular quarterly dividend of
$0.02 per share payable on January 26, 2007 to holders of
record on December 29, 2006. Aggregate cash payments for
dividends during 2006 were $24.6 million.
Cash and Cash Requirements
As of December 31, 2006, the Company held $318 million of cash
and cash equivalents that were invested in highly liquid investment
grade debt instruments with a maturity of 90 days or less.
The Company will continue to have cash requirements to
support working capital needs and capital expenditures and
acquisitions, to pay interest and service debt, fund its pension
plans as required, pay dividends to shareholders and repurchase
shares of the Company’s common stock. The Company gener-
ally intends to use available cash and internally generated funds
to meet these cash requirements, using borrowings under exist-
ing commercial paper programs or credit facilities or by access-
ing the capital markets as needed for liquidity. The Company
believes that it has sufficient liquidity to satisfy both short-term
and long-term requirements.
The Company’s cash balances are generated and held in
numerous locations throughout the world, including substantial
amounts held outside the United States. The Company utilizes
a variety of tax planning and financing strategies in an effort to
ensure that its worldwide cash is available in the locations in
which it is needed. Wherever possible, cash management is cen-
tralized and inter-company financing is used to provide working
capital to our operations. Most of the cash balances held outside
the United States could be repatriated to the United States, but,
under current law, would potentially be subject to United States
federal income taxes, less applicable foreign tax credits. Repa-
triation of some foreign balances is restricted by local laws.
Where local restrictions prevent an efficient inter-company
transfer of funds, the Company’s intent is that cash balances
would remain in the foreign country and it would meet United
States liquidity needs through ongoing cash flows, external bor-
rowings, or both.
Pension and Other Post Retirement & Employee Benefit Plans
Due to previous equity market declines the fair value of the Com-
pany’s pension fund assets has decreased below the accumulated
benefit obligation due to the participants in the U.S. plan. In addition,
certain non-U.S. plans are not fully funded. As a result, in accor-
dance with SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an Amendment
of FASB Statements No. 87, 88, 106 and 132(R)”, the Company
has recorded unrecognized losses and prior service costs of
$151.9 million ($99.2 million net of tax benefits) cumulatively
through December 31, 2006. The unrecognized losses and prior
service costs, net, is calculated as the difference between the actu-
arially determined accumulated benefit obligation and the value of
the plan assets as of September 30, 2006. This adjustment results
in a direct reduction of stockholders’ equity and does not immedi-
ately impact net earnings.
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No.
87, 88, 106, and 132(R)” (“SFAS 158”). For a summary of the
material provisions of SFAS No. 158, see “New Accounting
Standards.” The application of FAS 158 in 2006 decreased the
Company’s minimum pension liability by $13.0 million ($9.1 mil-
lion net of tax benefits) due to the recognition of previously
35
unrecognized, over-funded positions in certain of the Compa-
ny’s non-US pension plans. The Company also recorded other
comprehensive income of $10 million ($6.5 million net of tax
benefits) due to the recognition of actuarially determined prior
service credits associated with the Company’s U.S. based
retiree benefit program.
Calculations of the amount of pension and other postretire-
ment benefits costs and obligations depend on the assumptions
used in such calculations. These assumptions include discount
rates, expected return on plan assets, rate of salary increases,
health care cost trend rates, mortality rates, and other factors.
While the Company believes that the assumptions used in cal-
culating its pension and other postretirement benefits costs and
obligations are appropriate, differences in actual experience or
changes in the assumptions may affect the Company’s financial
position or results of operations. For the United States plan, the
Company used a 5.75% discount rate in computing the amount
of the minimum pension liability to be recorded at December 31,
2006, which represents an increase of 0.25% in the discount
rate from December 31, 2005. For non-U.S. plans, rates appro-
priate for each plan are determined based on investment grade
instruments with maturities approximately equal to the average
expected benefit payout under the plan. A further 25 basis point
reduction in the discount rate used for the plans would have
increased the minimum pension liability $20 million ($13 million
on an after tax basis) from the amount recorded in the financial
statements at December 31, 2006.
For 2006, the expected long-term rate of return assump-
tion applicable to assets held in the United States plan was esti-
mated at 8.0% which is the same as the rate used in 2005. This
expected rate of return reflects the asset allocation of the plan
and the expected long-term returns on equity and debt invest-
ments included in plan assets. The U.S. plan invests between
60% to 70% of its assets in equity portfolios which are invested
in funds that are expected to mirror broad market returns for
equity securities. The balance of the asset portfolio is invested
in corporate bonds and bond index funds. Pension expense
for the U.S. plan for the year ended December 31, 2006 was
$17 million (or $11 million on an after-tax basis), compared with
$8.1 million (or $5.9 million on an after-tax basis) for this plan
in 2005. If the expected long-term rate of return on plan assets
was reduced by 0.5%, pension expense for 2006 would have
increased $1.6 million (or $1.0 million on an after-tax basis). The
Company made no contributions to the U.S. plan in 2006 and is
not statutorily required to make contributions to the plan in 2007.
The Company’s non-U.S. plan assets are comprised of various
insurance contracts, equity and debt securities as determined
by the administrator of each plan. The estimated long-term rate
of return for the non-U.S. plans was determined on a plan by plan
basis based on the nature of the plan assets and ranged from
2.5% to 6.5% for 2006.
The U.S. Pension Protection Act of 2006 was enacted
August 17, 2006. While the Act will have some effect on specific
plan provisions in our retirement program, its primary effect will be
to change the minimum funding requirements for plan years begin-
ning in 2008. Based on initial projections, the Act is expected to
slightly increase the amount of our required contributions.
36
Contractual Obligations
The following table sets forth, by period due or year of expected expiration, as applicable, a summary of the Company’s contractual
obligations as of December 31, 2006 under (1) long-term debt obligations, (2) leases, (3) purchase obligations and (4) other long-
term liabilities reflected on the Company’s balance sheet under GAAP.
Debt & Leases:
Long-Term Debt Obligations(a)(b)
Capital Lease Obligations(b)
Total Long-Term Debt
Interest Payments on Long-Term Debt and
Capital Lease Obligations
Operating Lease Obligations(c)
Other:
Purchase Obligations(d)
Other Liabilities Reflected on the Company’s
Balance Sheet Under GAAP(e)
Total
Total
Less Than
One Year
1–3 Years
3–5 Years
($ in millions)
$2,419.3
14.4
2,433.7
614.7
290.6
$
8.2
2.7
10.9
82.0
77.2
$258.1
5.6
263.7
144.8
115.3
$ 880.7
6.1
886.8
106.9
56.0
More Than
5 Years
$1,272.3
—
1,272.3
281.0
42.1
244.9
238.6
6.3
—
—
2,833.5
1,496.4
$ 6,417.4
$1,905.1
255.3
$785.4
180.0
901.8
$1,229.7
$ 2,497.2
(a) As described in Note 7 to the Consolidated Financial Statements
(b) Amounts do not include interest payments. Interest on long-term debt and capital lease obligations is reflected in a separate line in the table.
(c) As described in Note 10 to the Consolidated Financial Statements
(d) Consist of agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms,
including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
(e) Primarily consist of obligations under product service and warranty policies and allowances, performance and operating cost guarantees, estimated
environmental remediation costs, self-insurance and litigation claims, post-retirement benefits, certain pension obligations, deferred tax liabilities
and deferred compensation obligations. The timing of cash flows associated with these obligations are based upon management’s estimates over the
terms of these agreements and are largely based upon historical experience.
Off-Balance Sheet Arrangements
The following table sets forth, by period due or year of expected expiration, as applicable, a summary of off-balance sheet commercial
commitments of the Company.
Amount of Commitment Expiration per Period
Total
Amounts
Committed
Less Than
One Year
1–3 Years
3–5 Years
($ in millions)
Standby Letters of Credit and
Performance Bonds
Guarantees
Obligation for Vision System shares not yet
acquired at December 31, 2006
Contingent Acquisition Consideration
Total
$165.5
49.7
72.7
41.9
$ 82.5
38.7
72.7
5.1
$329.8
$199.0
$ 37.2
2.9
—
36.8
$76.9
$30.4
0.3
—
—
$30.7
$23.2
Standby letters of credit and performance bonds are gener-
ally issued to secure the Company’s obligations under short-term
contracts to purchase raw materials and components for manufac-
ture and for performance under specific manufacturing agree-
ments. Guarantees are generally issued in connection with certain
transactions with vendors, suppliers and financing entities.
In connection with three past acquisitions, the Company
has entered into agreements with the respective sellers to pay
certain amounts in the future as additional purchase price. The
Company enters into these types of arrangements to help
bridge differences of opinion that the Company and the sellers
may have over the appropriate value of the acquired business.
The Company could pay nothing in the aggregate over the next
More Than
5 Years
$15.4
7.8
—
—
three years pursuant to these agreements, or a maximum of up
to $41.9 million over the next three years depending on the
future performance of the respective businesses. In connection
with acquisitions completed subsequent to December 31,
2006, the Company entered into similar agreements with
the respective sellers to pay additional purchase price of up to
$2.4 million over the next 2 years if certain performance criteria
are achieved.
The Company has from time to time divested certain of its
businesses and assets. In connection with these divestitures,
the Company often provides representations, warranties and/or
indemnities to cover various risks and unknown liabilities,
such as claims for damages arising out of the use of products
or relating to intellectual property matters, commercial disputes,
environmental matters or tax matters. The Company cannot
estimate the potential liability from such representations, war-
ranties and indemnities because they relate to unknown condi-
tions. However, the Company does not believe that the liabilities
relating to these representations, warranties and indemnities
will have a material adverse effect on the Company’s financial
position, results of operations or liquidity.
Due to the Company’s downsizing of certain operations
pursuant to acquisitions, restructuring plans or otherwise, cer-
tain properties leased by the Company have been sublet to third
parties. In the event any of these third parties vacates any of
these premises, the Company would be legally obligated under
master lease arrangements. The Company believes that the
financial risk of default by such sub-lessors is individually and in
the aggregate not material to the Company’s financial position,
results of operations or liquidity.
Except as described above, as of December 31, 2006 the
Company has not entered into any off-balance sheet financing
arrangements and has no unconsolidated special purpose entities.
Legal Proceedings
Please refer to Notes 11 to the Consolidated Financial State-
ments included in this Annual Report for information regarding
certain outstanding litigation matters.
In addition to the litigation noted under “Item 1. Business—
Regulatory Matters—Environmental, Health & Safety”, the Com-
pany is, from time to time, subject to a variety of litigation
incidental to its business. These lawsuits primarily involve claims
for damages arising out of the use of the Company’s products,
claims relating to intellectual property matters and claims involv-
ing employment matters and commercial disputes. The Com-
pany may also become subject to lawsuits as a result of past or
future acquisitions. Some of these lawsuits include claims for
punitive and consequential as well as compensatory damages.
While the Company maintains workers compensation, property,
cargo, automobile, crime, fiduciary, product, general liability, and
directors’ and officers’
liability insurance (and has acquired
rights under similar policies in connection with certain acquisi-
tions) that it believes cover a portion of these claims, this insur-
ance may be insufficient or unavailable to protect the Company
against potential loss exposures. In addition, while the Company
believes it is entitled to indemnification from third parties for
some of these claims, these rights may also be insufficient or
37
unavailable to protect the Company against potential loss expo-
sures. The Company believes that the results of these litigation
matters and other pending legal proceedings will not have a
materially adverse effect on its cash flows or financial condition,
even before taking into account any related insurance or indem-
nification recoveries.
The Company maintains third party insurance policies up to
certain limits to cover liability costs in excess of predetermined
retained amounts. The Company carries significant deductibles
and self-insured retentions under our insurance policies, and
management believes that the Company maintains adequate
accruals to cover the retained liability. Management determines
for self-insurance liability based
the Company’s accrual
on claims filed and an estimate of claims incurred but not
yet reported.
The Company’s Certificate of Incorporation requires it to
indemnify to the full extent authorized or permitted by law any
person made, or threatened to be made a party to any action or
proceeding by reason of his or her service as a director or officer
of the Company, or by reason of serving at the request of the
Company as a director or officer of any other entity, subject to
limited exceptions. While the Company maintains insurance for
this type of liability, a significant deductible applies to this cov-
erage and any such liability could exceed the amount of the
insurance coverage.
For a discussion of additional risks related to existing and
potential legal proceedings, please refer to “Item 1A. Risk Factors.”
Critical Accounting Policies
Management’s discussion and analysis of the Company’s finan-
cial condition and results of operations are based upon the
Company’s Consolidated Financial Statements, which have
been prepared in accordance with accounting principles gener-
ally accepted in the United States. The preparation of these
financial statements requires management to make estimates
and judgments that affect the reported amounts of assets,
liabilities,
revenues and expenses, and related disclosure
of contingent assets and liabilities. The Company bases these
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the cir-
cumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates.
The Company believes the following critical accounting
policies affect management’s more significant judgments and
estimates used in the preparation of the Consolidated Financial
Statements. For a detailed discussion on the application of
these and other accounting policies, see Note 1 in the Compa-
ny’s Consolidated Financial Statements.
A C C O U N T S R E C E I V A B L E . The Company maintains allow-
ances for doubtful accounts for estimated losses resulting from
the inability of the Company’s customers to make required pay-
ments. The Company estimates its anticipated losses from
doubtful accounts based on historical collection history as
well as by specifically reserving for known doubtful accounts.
38
Estimating losses from doubtful accounts is inherently uncer-
tain because the amount of such losses depends substantially
on the financial condition of the Company’s customers, and the
Company typically has limited visibility as to the specific financial
state of its customers. If the financial condition of the Company’s
customers were to deteriorate beyond estimates, resulting in an
impairment of their ability to make payments, the Company
would be required to write off additional accounts receivable
balances, which could adversely impact the Company’s net
earnings and financial condition.
I N V E N T O R I E S . The Company records inventory at the lower of
cost or market. The Company estimates the market value of its
inventory based on assumptions for future demand and related
pricing. Estimating the market value of inventory is inherently
uncertain because levels of demand, technological advances
and pricing competition in many of the Company’s markets can
fluctuate significantly from period to period due to circum-
stances beyond the Company’s control. As a result, such fluc-
tuations can be difficult to predict. If actual market conditions
are less favorable than those projected by management, the
Company would be required to reduce the value of its inventory,
which would adversely impact the Company’s net earnings and
financial condition.
A C Q U I R E D I N T A N G I B L E S . The Company’s business acquisi-
tions typically result in goodwill and other intangible assets, which
affect the amount of future period amortization expense and pos-
sible impairment expense that the Company will
incur. The
Company follows Statement of Financial Accounting Standards
(“SFAS”) No. 142, the accounting standard for goodwill, which
requires that the Company, on an annual basis, calculate the fair
value of the reporting units that contain the goodwill and compare
that to the carrying value of the reporting unit to determine if impair-
ment exists. Impairment testing must take place more often if cir-
cumstances or events indicate a change in the impairment status.
In calculating the fair value of the reporting units, management
relies on a number of factors including operating results, business
plans, economic projections, anticipated future cash flows, and
transactions and market place data. There are inherent uncertain-
ties related to these factors and management’s judgment in apply-
ing them to the analysis of goodwill impairment. If actual fair value
is less than the Company’s estimates, goodwill and other intangible
assets may be overstated on the balance sheet and a charge would
need to be taken against net earnings.
The Company’s annual goodwill impairment analysis, which
was performed during the fourth quarter of fiscal 2006, did not
result in an impairment charge. The excess of fair value over car-
rying value for each of the Company’s reporting units as of
September 30, 2006, the annual testing date, ranged from
approximately $3 million to approximately $1.7 billion. In order to
evaluate the sensitivity of the fair value calculations on the goodwill
impairment
the Company applied a hypothetical 10%
decrease to the fair values of each reporting unit. This hypothetical
10% decrease would result in excess fair value over carrying value
ranging from approximately $1 million to approximately $1.5 billion
for each of the Company’s reporting units.
test,
L O N G - L I V E D A S S E T S . The Company reviews its long-lived
assets for impairment whenever events or changes in circum-
stances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets
to the future net cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impair-
ment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds their fair value. Judg-
ments made by the Company relate to the expected useful lives
of long-lived assets and its ability to realize any undiscounted
cash flows in excess of the carrying amounts of such assets and
are affected by factors such as the ongoing maintenance and
improvements of the assets, changes in the expected use of the
assets, changes in economic conditions, changes in operating
performance and anticipated future cash flows. Since judgment
is involved in determining the fair value of long-lived assets,
there is risk that the carrying value of the Company’s long-lived
assets may require adjustment in future periods. If actual fair
value is less than the Company’s estimates, long-lived assets
may be overstated on the balance sheet and a charge would
need to be taken against net earnings.
In connection with its acquisitions,
P U R C H A S E A C C O U N T I N G .
the Company formulates a plan related to the future integration
of the acquired entity. In accordance with Emerging Issues Task
Force Issue No. 95-3, “Recognition of Liabilities in Connection
with a Purchase Business Combination”, the Company accrues
estimates for certain of the integration costs anticipated at the
date of acquisition, including personnel reductions and facility
closures or restructurings. Adjustments to these estimates are
made up to 12 months from the acquisition date as plans are
finalized. The Company establishes these accruals based on
information obtained during the due diligence process, the
Company’s experience in acquiring other companies, and infor-
mation obtained after the closing about the acquired company’s
business, assets and liabilities. The accruals established by the
Company are inherently uncertain because they are based on
limited information on the fair value of the assets and liabilities
of the acquired business as well as the uncertainty of the cost
to execute the integration plans for the business. If the accruals
established by the Company are insufficient to account for all of
the activities required to integrate the acquired entity, the Com-
pany would be required to incur an expense, which would
adversely affect the Company’s results of operations. To the
extent these accruals are not utilized for the intended purpose,
the excess is recorded as a reduction of the purchase price, typi-
cally by reducing recorded goodwill balances.
R I S K I N S U R A N C E . The Company carries significant deductibles
and self-insured retentions with respect to various business risks.
The business risk areas involving the most significant accounting
estimates are workers’ compensation and product liability. For
domestic workers’ compensation and product liability risk, the
Company generally purchases outside insurance coverage only
for severe losses (“stop loss” insurance) and must establish and
maintain reserves with respect to amounts within the self-insured
retention. These reserves are comprised of specific reserves for
individual claims and additional amounts expected for develop-
ment of these claims as well as for incurred but not yet reported
claims. The specific reserves for individual known claims are quan-
tified by third party administrator specialists for workers’ compen-
sation and by outside risk insurance experts for product liability. In
addition, outside risk experts recommend reserves for incurred but
not yet reported claims by evaluating the Company’s specific loss
history, actual claims reported, and industry trends among statisti-
cal and other factors. The Company believes the liability recorded
for such risk insurance reserves as of December 31, 2006 is
adequate, but due to judgments inherent in the reserve process it
is possible the ultimate costs will differ from this estimate.
E N V I R O N M E N T A L . The Company has made a provision for envi-
ronmental remediation and environmental-related personal injury
claims with respect to sites owned or formerly owned by the
Company and its subsidiaries. The Company generally makes an
assessment of the costs involved for its remediation efforts based
on environmental studies as well as its prior experience with similar
sites. If the Company determines that it has potential remediation
liability for properties currently owned or previously sold, it accrues
the total estimated costs, including investigation and remediation
costs, associated with the site. The Company also estimates its
exposure for environmental-related personal
injury claims and
accrues for this estimated liability as such claims become known.
While the Company actively pursues appropriate insurance recov-
eries as well as appropriate recoveries from other potentially
responsible parties, it does not recognize any insurance recoveries
for environmental liability claims until realized. The ultimate cost of
site cleanup is difficult to predict given the uncertainties of the
Company’s involvement in certain sites, uncertainties regarding
the extent of the required cleanup, the availability of alternative
cleanup methods, variations in the interpretation of applicable laws
and regulations, the possibility of insurance recoveries with respect
to certain sites and the fact that imposition of joint and several liabil-
ity with right of contribution is possible under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
and other environmental laws and regulations. As such, there can
be no assurance that the Company’s estimates of environmental
liabilities will not change. Refer to Note 11 of the Notes to the Con-
solidated Financial Statements for additional information.
C O N T I N G E N T L I A B I L I T I E S . The Company is, from time to time,
subject to routine litigation incidental to its business. These law-
suits primarily involve claims for damages arising out of the use
of the Company’s products, allegations of patent and trademark
infringement and trade secret misappropriation, and litigation
and administrative proceedings involving employment matters
and commercial disputes. The Company may also become
subject to lawsuits as a result of past or future acquisitions.
Some of these lawsuits include claims for punitive as well as
compensatory damages. The Company recognizes a liability for
any contingency that is probable of occurrence and reasonably
estimable. The Company periodically assesses the likelihood of
adverse judgments or outcomes for these matters, as well
as potential amounts or ranges of probable losses, and if
39
appropriate recognizes a liability for these contingencies with
the assistance of legal counsel and, if applicable, other experts.
These assessments require judgments concerning matters
such as the anticipated outcome of negotiations, the number
and cost of pending and future claims, and the impact of eviden-
tiary requirements. Because most contingencies are resolved
over long periods of time, liabilities may change in the future due
to new developments or changes in the Company’s settlement
including
strategy. For a discussion of these contingencies,
management’s judgment applied in the recognition and mea-
surement of specific liabilities, refer to Note 11 of the Notes to
Consolidated Financial Statements.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 158, “Employ-
ers’ Accounting for Defined Benefit Pension and Other Postre-
tirement Plans—an amendment of FASB Statements No. 87, 88,
106 and 132(R).” This statement requires a company to (a) rec-
ognize in its statement of financial position an asset for a plan’s
over funded status or a liability for a plan’s under funded status
(b) measure a plan’s assets and its obligations that determine its
funded status as of the end of the employer’s fiscal year, and (c)
recognize changes in the funded status of a defined postretire-
ment plan in the year in which the changes occur (reported in
comprehensive income). The requirement to recognize the
funded status of a benefit plan and the disclosure requirements
are effective as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure the plan
assets and benefit obligations as of the date of the employer’s
fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The adoption of
this standard reduced the amount of pension and other post-
retirement liabilities recorded by approximately $23 million as of
December 31, 2006 due to the recognition of previously unrec-
ognized, over-funded positions in certain of the Company’s
non-US pension plans and due to the recognition of actuarially
determined prior service credits associated with the Company’s
U.S. based retiree benefit program. The Company expects to
change its pension plan measurement date to December 31
effective in 2008. See “Pension and Other Post Retirement &
Employee Benefit Plans” above and Notes 8 and 9 to the Con-
solidated Financial Statements for additional information.
In November 2004,
the FASB issued Statement of
Financial Accounting Standards (“SFAS”) No. 151, “Inventory
Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151
amends Accounting Research Bulletin (“ARB”) No. 43, Chapter
4, to clarify that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage) should
be recognized as current-period charges. In addition, SFAS
No. 151 requires that allocation of fixed production overhead to
inventory be based on the normal capacity of the production
facilities. SFAS No. 151 was effective in the Company’s first
quarter of 2006. The adoption of SFAS No. 151 did not have a
significant impact on the Company’s results of operations,
financial position or cash flows.
40
Effective January 1, 2006, the Company adopted statements
of financial accounting standards No. 123 (revised 2004), Share
Based Payment (“SFAS 123 R”), which requires the company to
measure the cost of employee services received in exchange for
all equity awards. See Note 14 for further discussion.
In July 2006, the FASB issued FASB Interpretation No. 48
(“FIN 48) “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109”, to clarify certain
including
aspects of accounting for uncertain tax positions,
issues related to the recognition and measurement of those tax
positions. This interpretation is effective for fiscal years begin-
ning after December 15, 2006. The Company adopted FIN 48
as of January 1, 2007, as required. While the Company is
continuing to evaluate the impact of this Interpretation and guid-
ance on its application, the Company currently estimates the
adoption of FIN 48 will reduce the amount recorded by the
Company for uncertain tax positions by approximately $60 to
$80 million. This reduction will be recorded as an adjustment to
opening retained earnings as of January 1, 2007.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information required by this item is included under “Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management on Danaher Corporation’s Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining internal control over financial reporting. Internal
control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2006. In making this assessment, the Company’s management used the criteria set forth by the Committee of Spon-
soring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework”. Based on this assessment,
management concluded that, as of December 31, 2006, the Company’s internal control over financial reporting is effective based
on those criteria.
The Company’s independent auditors have issued an audit report on management’s assessment of the effectiveness of the
Company’s internal control over financial reporting. This report dated February 21, 2007 appears on page 42 of this Form 10-K.
42
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
To the Board of Directors and Shareholders of Danaher Corporation:
We have audited management’s assessment, included in the accompanying Report of Management on Danaher Corporation’s
Internal Control Over Financial Reporting, that Danaher Corporation maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Danaher Corporation’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assur-
ance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Danaher Corporation maintained effective internal control over financial reporting
as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Danaher
Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Danaher Corporation and subsidiaries as of December 31, 2006 and 2005, and the related con-
solidated statements of earnings, stockholders’ equity and cash flows for each of the three years in the period ended December 31,
2006 and our report dated February 21, 2007 expressed an unqualified opinion thereon.
Ernst & Young LLP
Baltimore, Maryland
February 21, 2007
43
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
To the Board of Directors and Shareholders of Danaher Corporation:
We have audited the accompanying consolidated balance sheets of Danaher Corporation and subsidiaries as of December 31, 2006
and 2005, and the related consolidated statements of earnings, stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our respon-
sibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Danaher Corporation and subsidiaries at December 31, 2006 and 2005 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 of the notes to the consolidated financial statements, in 2006 the Company adopted Statement of Financial
Accounting Standards No. 123R, Share Based Payment, and adopted Statement of Financial Accounting Standards No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans—an amendment of FASB Statements Nos. 87,
88, 106, and 132R.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of Danaher Corporation’s internal control over financial reporting as of December 31, 2006, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 21, 2007 expressed an unqualified opinion thereon.
Ernst & Young LLP
Baltimore, Maryland
February 21, 2007
44
Danaher Corporation and Subsidiaries Consolidated Statements of Earnings
Year Ended December 31 (in thousands)
Sales
Cost of sales
Selling, general and administrative expenses
Other (income) expense, net
Total operating expenses
Operating profit
Interest expense
Interest income
Earnings before income taxes
Income taxes
Net earnings
Earnings Per Share:
Basic net earnings per share
Diluted net earnings per share
Average common stock and common equivalent shares outstanding:
Basic
Diluted
See the accompanying Notes to the Consolidated Financial Statements.
2006
$9,596,404
5,353,021
2,741,769
(16,379)
8,078,411
1,517,993
(79,829)
8,008
1,446,172
324,143
2005
$ 7,984,704
4,539,689
2,175,751
4,596
6,720,036
1,264,668
(44,933)
14,707
1,234,442
336,642
2004
$6,889,301
3,996,636
1,795,673
(8,141)
5,784,168
1,105,133
(54,984)
7,568
1,057,717
311,717
$1,122,029
$ 897,800
$ 746,000
$
$
3.64
3.48
$
$
2.91
2.76
$
$
2.41
2.30
307,984
325,251
308,905
327,983
308,964
327,701
Danaher Corporation and Subsidiaries Consolidated Balance Sheets
As of December 31 (in thousands)
ASSETS
Current assets:
Cash and equivalents
Trade accounts receivable, less allowance for doubtful accounts
of $103,201 and $91,115, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Other assets
Goodwill
Other intangible assets, net
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current portion of long-term debt
Trade accounts payable
Accrued expenses
Total current liabilities
Other liabilities
Long-term debt
Stockholders’ equity:
Common stock, one cent par value; 500,000 shares authorized; 341,223 and 338,547
issued; 308,242 and 305,571 outstanding
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders’ equity
See the accompanying Notes to the Consolidated Financial Statements.
45
2006
2005
$
317,810
$ 315,551
1,674,970
1,005,360
396,762
3,394,902
874,368
300,434
6,596,123
1,698,324
1,407,858
825,263
396,347
2,945,019
748,172
160,780
4,474,991
834,147
$12,864,151
$9,163,109
$
10,855
952,337
1,496,364
2,459,556
1,337,074
2,422,861
$ 183,951
782,854
1,301,781
2,268,586
956,402
857,771
3,412
1,027,454
191,985
5,421,809
6,644,660
3,385
861,875
(109,279)
4,324,369
5,080,350
$12,864,151
$9,163,109
46
Danaher Corporation and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31 (in thousands)
Cash flows from operating activities:
Net earnings from operations
Depreciation expense
Amortization expense
Stock compensation expense
Change in deferred income taxes
Change in trade accounts receivable, net
Change in inventories
Change in accounts payable
Change in accrued expenses and other liabilities
Change in prepaid expenses and other assets
2006
2005
2004
$ 1,122,029
153,017
64,173
67,191
24,154
(50,848)
3,368
80,758
98,270
(14,861)
$ 897,800
140,974
35,998
7,502
102,910
(66,611)
(22,478)
138,144
8,193
(38,631)
$ 746,000
129,486
26,642
8,103
176,056
(110,007)
65,528
65,315
(48,543)
(25,364)
Net cash provided from operating activities
1,547,251
1,203,801
1,033,216
Cash flows from investing activities:
Payments for additions to property, plant and equipment
Proceeds from disposals of property, plant and equipment
Cash paid for acquisitions
Cash paid for investment in acquisition target
Proceeds from sale of investment in acquisition target and
other divestitures
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Dividends paid
Purchase of treasury stock
Net increase in borrowings (maturities of 90 days or less)
Proceeds from debt borrowings (maturities longer than 90 days)
Debt repayments
Net cash provided from (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
See the accompanying Notes to the Consolidated Financial Statements.
(137,706)
9,988
(2,656,035)
(84,102)
(121,206)
18,783
(885,083)
—
(115,906)
30,894
(1,591,719)
—
98,485
22,100
43,100
(2,769,370)
(965,406)
(1,633,631)
98,415
(24,589)
—
846,897
757,490
(459,372)
1,218,841
5,537
2,259
315,551
59,931
(21,553)
(257,696)
—
355,745
(647,987)
(511,560)
(20,399)
(293,564)
609,115
45,957
(17,731)
—
—
130,000
(196,281)
(38,055)
17,429
(621,041)
1,230,156
$ 317,810
$ 315,551
$ 609,115
47
Danaher Corporation and Subsidiaries Consolidated Statements of Stockholders’ Equity
(in thousands)
Balance, January 1, 2004
Net earnings for the year
Dividends declared
Common stock issued for
options exercised and restricted
stock grants
Stock dividend
Increase from translation of foreign
financial statements
Minimum pension liability (net of tax
expense of $3,710)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
167,694
—
—
$ 1,677
—
—
$ 999,786
—
—
$ 2,719,853
746,000
(17,731)
Accumulated
Other
Comprehensive
Income (Loss)
$ (74,607)
—
—
Comprehensive
Income
$ 746,000
—
1,039
168,213
10
1,682
54,050
(1,682)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
183,754
183,754
6,890
6,890
Balance, December 31, 2004
336,946
$3,369
$1,052,154
$3,448,122
$ 116,037
$ 936,644
Net earnings for the year
Dividends declared
Common stock issued for
options exercised and restricted
stock grants
Treasury stock purchase
(5 million shares)
Decrease from translation of foreign
financial statements
Minimum pension liability (net of tax
benefit of $3,579)
—
—
—
—
—
—
897,800
(21,553)
1,601
16
67,417
—
—
—
—
—
—
(257,696)
—
—
—
—
—
—
—
—
—
—
$ 897,800
—
—
—
(216,447)
(216,447)
(8,869)
(8,869)
Balance, December 31, 2005
338,547
$3,385
$ 861,875
$4,324,369
$(109,279)
$ 672,484
Net earnings for the year
Dividends declared
Common stock issued for
options exercised and restricted
stock grants
Increase from translation of foreign
financial statements
Adjustment for adoption of SFAS No.
158 (net of tax expense of $7,414)
Minimum pension liability (net of tax
expense of $1,289)
—
—
2,676
—
—
—
—
27
—
—
—
—
1,122,029
(24,589)
165,579
—
—
—
—
—
—
—
—
$1,122,029
—
—
284,413
284,413
15,629
—
1,222
1,222
Balance, December 31, 2006
341,223
$3,412
$ 1,027,454
$5,421,809
$ 191,985
$ 1,407,664
See the accompanying Notes to the Consolidated Financial Statements.
48
(1) Business and Summary of Significant
Accounting Policies:
B U S I N E S S . Danaher Corporation designs, manufactures and
markets professional, medical, industrial and consumer prod-
ucts which are typically characterized by strong brand names,
proprietary technology and major market positions in four
business segments: Professional
Instrumentation, Medical
Technologies, Industrial Technologies and Tools & Components.
Businesses in the Professional Instrumentation segment offer
professional and technical customers various products and ser-
vices that are used in connection with the performance of their
work. As of December 31, 2006, the Professional Instrumenta-
tion segment encompassed two strategic businesses—
environmental and electronic test. These businesses produce
and sell compact, professional electronic test tools and calibra-
tion equipment; water quality instrumentation and consumables
and ultraviolet disinfection systems; and retail/commercial
petroleum products and services, including underground stor-
age tank leak detection and vapor recovery systems. The Medi-
cal Technologies segment includes businesses that design and
manufacture critical care diagnostic instruments, high-
precision optical systems for the analysis of microstructures and
a wide range of products used by dental professionals. Busi-
nesses in the Industrial Technologies segment manufacture
products and sub-systems that are typically incorporated by
customers and systems integrators into production and packag-
ing lines and by original equipment manufacturers (OEMs) into
various end-products and systems. Many of the businesses also
provide services to support their products, including helping
customers integrate and install the products and helping ensure
product uptime. The Industrial Technologies segment encom-
passed two strategic businesses, motion and product identifica-
tion, and three focused niche businesses, aerospace and
defense, sensors & controls, and power quality. These busi-
nesses produce and sell product identification equipment and
consumables; motion, position, speed, temperature, and level
instruments and sensing devices; power switches and controls;
power protection products; liquid flow and quality measuring
devices; aerospace safety devices and defense articles; and
electronic and mechanical counting and controlling devices. The
Tools & Components segment is one of the largest domestic
producers and distributors of general purpose and specialty
mechanics’ hand tools. Other products manufactured by the
businesses in this segment include toolboxes and storage
devices; diesel engine retarders; wheel service equipment; and
drill chucks.
A C C O U N T I N G P R I N C I P L E S . The consolidated financial state-
ments include the accounts of the Company and its subsidiaries.
All significant intercompany balances and transactions have
been eliminated upon consolidation.
U S E O F E S T I M A T E S . The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements as well as the reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories include the costs of
I N V E N T O R Y VA L U A T I O N .
material,
labor and overhead. Depending on the business,
domestic inventories are stated at either the lower of cost or
market using the last-in, first-out method (LIFO) or the lower of
cost or market using the first-in, first-out (FIFO) method. Inven-
tories held outside the United States are primarily stated at the
lower of cost or market using the FIFO method.
P R O P E R T Y, P L A N T A N D E Q U I P M E N T . 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.
O T H E R A S S E T S . Other assets include principally noncurrent
trade receivables, other investments, and capitalized costs
associated with obtaining financings which are amortized over
the term of the related debt.
F A I R VA L U E O F F I N A N C I A L I N S T R U M E N T S . For cash and
equivalents, the carrying amount is a reasonable estimate of fair
value. For long-term debt, where quoted market prices are not
available, rates available for debt with similar terms and remain-
ing maturities are used to estimate the fair value of existing debt.
G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S . Goodwill and
other intangible assets result from the Company’s acquisition of
existing businesses. In accordance with Statement of Financial
Accounting Standard (SFAS) No. 142, amortization of recorded
goodwill balances ceased effective January 1, 2002. However,
amortization of certain identifiable intangible assets continues
over the estimated useful lives of the identified asset. Amor-
tization expense for all other intangible assets,
including a
charge of $6.5 million in 2006 related to acquired in-process
research and development at an acquired business, was
$64.2 million, $36.0 million and $26.6 million, for the years
ended December 31, 2006, 2005, and 2004, respectively.
See Notes 2 and 5 for additional information.
S H I P P I N G A N D H A N D L I N G . Shipping and handling costs are
included as a component of cost of sales. Shipping and handling
costs billed to customers are included in sales.
R E V E N U E R E C O G N I T I O N . As described above, the Company
derives revenues primarily from the sale of professional, indus-
trial, medical and consumer products and services. For revenue
related to a product or service to qualify for recognition, there
must be persuasive evidence of a sale, delivery must have
occurred or the services must have been rendered, the price to
the customer must be fixed and determinable and collectibility
of the balance must be reasonably assured. The Company’s
standard terms of sale are FOB Shipping Point and, as such, the
Company principally records revenue for product sale upon
49
shipment. If any significant obligations to the customer with
respect to such sale remain to be fulfilled following shipment,
typically involving obligations relating to installation and accep-
tance by the buyer, revenue recognition is deferred until
such obligations have been fulfilled. Product returns consist of
estimated returns for products sold and are recorded as a
reduction in reported revenues at the time of sale as required by
SFAS No. 48. Customer allowances and rebates, consisting pri-
marily of volume discounts and other short-term incentive pro-
grams, are recorded as a reduction in reported revenues at the
time of sale because these allowances reflect a reduction in the
purchase price for the products purchased in accordance with
EITF 01-9. Product returns, customer allowances and rebates
are estimated based on historical experience and known trends.
Revenue related to maintenance agreements is recognized as
revenue over the term of the agreement as required by FASB
Technical Bulletin 90-1.
and $294 million in the years ended December 31, 2006, 2005,
and 2004, respectively.
F O R E I G N C U R R E N C Y TR A N S L A T I O N . Exchange adjustments
resulting from foreign currency transactions are recognized in
net earnings, whereas adjustments resulting from the transla-
tion 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.
C A S H A N D E Q U I V A L E N T S . The Company considers all highly
liquid investments with a maturity of three months or less at the
date of purchase to be cash equivalents.
I N C O M E TA X E S . The Company accounts for income taxes in
accordance with SFAS No. 109, “Accounting for Income Taxes.”
R E S E A R C H A N D D E V E L O P M E N T . The Company conducts
research and development activities for the purpose of develop-
ing new products and services and improving existing prod-
ucts and services. Research and development costs are
expensed as incurred and totaled $446 million, $379 million,
A C C U M U L A T E D O T H E R C O M P R E H E N S I V E I N C O M E ( L O S S ) .
The components of accumulated other comprehensive income
(loss) are summarized below. Foreign currency translation
adjustments are generally not adjusted for income taxes as they
relate to indefinite investments in non-US subsidiaries.
Foreign
Currency
Translation
Adjustment
$ 39.4
183.8
223.2
(216.5)
6.7
284.5
—
Minimum
Pension
Liability
Adjustment
$(114.0)
6.8
(107.2)
(8.8)
(116.0)
1.2
114.8
$ 291.2
$
—
Unrecognized
Losses and
Prior Service
Costs, net
Total
Accumulated
Comprehensive
Income (Loss)
$
—
—
—
—
—
—
(99.2)
$(99.2)
$ (74.6)
190.6
116.0
(225.3)
(109.3)
285.7
15.6
$ 192.0
Balance at January 1, 2004
Current-period change
Balance, December 31, 2004
Current-period change
Balance, December 31, 2005
Current-period change
Adoption of SFAS No. 158
Balance, December 31, 2006
See Notes 8 and 9 for additional information.
A C C O U N T I N G F O R S T O C K O P T I O N S . As described in Note 14,
effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-
Based Payment (“SFAS 123R”), which requires the Company to
measure the cost of employee services received in exchange for
all equity awards granted, including stock options and restricted
stock units (RSUs), based on the fair market value of the award as
of the grant date. SFAS 123R supersedes Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation and Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (“APB 25”). The Com-
pany has adopted SFAS 123R using the modified prospective
application method of adoption which requires the Company to
record compensation cost related to unvested stock awards as of
December 31, 2005 by recognizing the unamortized grant date
fair value of these awards over the remaining service periods of
those awards with no change in historical reported earnings.
Awards granted after December 31, 2005 are valued at fair value
in accordance with the provisions of SFAS 123R and recognized
as an expense on a straight-line basis over the service periods of
each award. The Company estimated forfeiture rates for 2006
based on its historical experience. Stock-based compensation for
2006 of $67.2 million has been recognized as a component of sell-
ing, general and administrative expenses in the accompanying
Consolidated Financial Statements as payroll costs of the employ-
ees are recorded in selling, general and administrative expenses.
Prior to 2006, the Company accounted for stock-based
compensation in accordance with APB 25 using the intrinsic
value method, which did not require that compensation cost be
recognized for the Company’s stock options provided the option
exercise price was established at 100% of the common stock
fair market value on the date of grant. Under APB 25, the Com-
pany was required to record expense over the vesting period for
the value of RSUs granted. Compensation expense related to
50
RSU awards is calculated based on the market prices of
Company common stock on the date of the grant. Prior to 2006,
the Company provided pro forma disclosure amounts in accor-
“Accounting for Stock-Based
dance with SFAS No. 148,
Compensation-Transition and Disclosure” (SFAS No. 148), as if
the fair value method defined by SFAS No. 123 had been
applied to its stock-based compensation.
The estimated fair value of the options granted during
2006, 2005, and 2004 was calculated using a Black-Scholes
Merton option pricing model (Black-Scholes) and assuming
risk-free interest rates between 4.0% to 5.1%, an option life
ranging from 7.0 to 9.5 years, expected volatility ranging from
22% to 25% and dividends at the current annual rate.
The following table illustrates the pro forma effect on net
earnings and earnings per share if the fair value based method
had been applied to all outstanding and unvested awards in
each year ($ thousands, except per share amounts):
Net earnings—as reported
Add: Stock-based compensation programs recorded as expense, net of
tax
Deduct: Total stock-based employee compensation expense,
net of tax
Pro forma net earnings
Earnings per share:
Basic—as reported
Basic—pro forma
Diluted—as reported
Diluted—pro forma
2006
2005
2004
$1,122,029
$ 897,800
$746,000
46,854
4,876
5,267
(46,854)
(34,377)
(33,754)
$1,122,029
$868,299
$717,513
$
$
$
$
3.64
3.64
3.48
3.48
$
$
$
$
2.91
2.81
2.76
2.67
$
$
$
$
2.41
2.32
2.30
2.22
&
P O S T
B E N E F I T
R E T I R E M E N T
P L A N S . On
P E N S I O N
September 29, 2006, SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans” was
issued. SFAS No. 158 requires, among other things, the recogni-
tion of the funded status of each defined benefit pension plan,
retiree health care and other postretirement benefit plans and
post-employment benefit plans on the balance sheet. The Com-
pany adopted SFAS 158 as of December 31, 2006. See notes 8
& 9 for additional information.
N E W A C C O U N T I N G P R O N O U N C E M E N T S —See Note 17.
(2) Acquisitions and Divestitures:
The Company has completed numerous acquisitions of busi-
nesses during the years ended December 31, 2006, 2005 and
2004. These acquisitions have either been completed because
of their strategic fit with an existing Company business or
because they are of such a nature and size as to establish a new
strategic line of business for growth for the Company. All of the
acquisitions during this time period have been accounted for as
purchases and have resulted in the recognition of goodwill in the
Company’s financial statements. This goodwill arises because
the purchase prices for these businesses reflect a number of
factors including the future earnings and cash flow potential of
these businesses; the multiple to earnings, cash flow and other
factors at which similar businesses have been purchased by
other acquirers; the competitive nature of the process by which
the Company acquired the business; and because of the
complementary strategic fit and resulting synergies these busi-
nesses bring to existing operations.
The Company makes an initial allocation of the purchase
price at the date of acquisition based upon its understanding of
the fair market value of the acquired assets and liabilities. The
Company obtains this information during due diligence and
through other sources. In the months after closing, as the Com-
pany obtains additional
information about these assets and
liabilities and learns more about the newly acquired business, it
is able to refine the estimates of fair market value and more
accurately allocate the purchase price. Examples of factors and
information that the Company uses to refine the allocations
include: tangible and intangible asset appraisals; cost data
facilities; employee/personnel data
related to redundant
related to redundant functions; product line integration and
rationalization information; management capabilities; and infor-
mation systems compatibilities. The only items considered for
subsequent adjustment are items identified as of the acquisition
date. The Company’s acquisitions in 2004 and 2005 did not
have any significant pre-acquisition contingencies (as contem-
plated by SFAS No. 38, “Accounting for Preacquisition Contin-
gencies of Purchased Enterprises”) which were expected to
have a significant effect on the purchase price allocation. The
Company is continuing to evaluate certain pre-acquisition con-
tingencies associated with ongoing litigation associated with its
2006 acquisitions, primarily Sybron Dental and Vision, and will
make appropriate adjustments to the purchase price allocation
prior to the one-year anniversary of the acquisition, as required.
The Company also periodically disposes of existing opera-
tions that are not deemed to strategically fit with its ongoing
operations or are not achieving the desired return on invest-
ment. The following briefly describes the Company’s acquisition
and divestiture activity for the above-noted periods.
In May 2006, the Company acquired all of the outstanding
shares of Sybron Dental for total consideration of approximately
$2 billion, including transaction costs and net of approximately
$94 million of cash acquired, and assumed approximately
$182 million of debt. Substantially all of the assumed debt was
subsequently repaid or refinanced prior to December 31, 2006.
Danaher financed the acquisition of shares and the refinancing
of the assumed debt primarily with proceeds from the issuance
of commercial paper and to a lesser extent from available cash.
The Sybron acquisition resulted in the recognition of a prelimi-
nary estimate of goodwill of approximately $1.5 billion primarily
related to Sybron’s future earnings and cash flow potential and
the world-wide leadership position of Sybron in many of its
served markets. Sybron has been included in the Company’s
Consolidated Statement of Earnings since May 19, 2006.
In addition, in the last quarter of 2006 and first quarter of 2007,
the Company acquired all of the outstanding shares of Vision for an
aggregate price of approximately $520 million, including transac-
tion costs and net of approximately $122 million of cash acquired,
and assumed $1.5 million of debt. The Company financed the
transaction through a combination of available cash and the issu-
ance of commercial paper. Vision, based in Australia, manufactures
and markets automated instruments, antibodies and biochemical
reagents used for biopsy-based detection of cancer and infectious
diseases, and had revenues of approximately $86 million in its
last completed fiscal year. The Vision acquisition resulted in the rec-
ognition of a preliminary estimate of goodwill of approximately
$357 million, primarily related to Vision’s future revenue growth
and earnings potential. Vision’s results of operations have been
included in the Company’s Consolidated Statement of Earnings
since November 30, 2006 and were not material to reported sales.
The Company incurred a pre-tax charge of $6.5 million for acquired
in-process research and development in connection with this
acquisition which was recorded in the fourth quarter of 2006.
In addition to Sybron Dental and Vision, the Company
acquired nine other companies and product lines in 2006 for
total consideration of approximately $213 million in cash,
including transaction costs, net of cash acquired. In general,
each company is a manufacturer and assembler of environmen-
tal instrumentation, medical equipment or industrial products, in
markets such as electronic test, critical care diagnostics, water
quality, product identification, and sensors and controls. These
companies were all acquired to complement existing units of the
Professional Instrumentation, Medical Technologies or Indus-
trial Technologies segments. The Company recorded an aggre-
gate of $130 million of goodwill related to these acquired
these nine
businesses. The aggregated annual sales of
acquired businesses at the dates of their respective acquisi-
tions were approximately $140 million.
In the first half of 2006, the Company purchased and sub-
sequently sold shares of First Technology plc, a U.K-based pub-
lic company, in connection with the Company’s unsuccessful bid
to acquire First Technology. First Technology also paid the Com-
pany a break-up fee of approximately $3 million. During the sec-
ond quarter of 2006 the Company recorded a pre-tax gain of
approximately $14 million ($8.9 million after-tax, or approxi-
mately $0.03 per diluted share) in connection with these mat-
ters, net of related transaction costs, which is included in “Other
expense (income), net” in the accompanying Consolidated
Statements of Earnings.
51
Disposals of fixed assets and land yielded approximately
$10 million of cash proceeds during 2006 from the sale of three
parcels of real estate and miscellaneous equipment. Disposals
of fixed assets yielded approximately $19 million of cash pro-
ceeds during 2005 primarily related to a sale of a building which
generated a pre-tax gain $5.3 million in 2005 which was
included as a component of “Other expense (income), net” in the
accompanying Consolidated Statements of Earnings.
Subsequent to December 31, 2006, the Company com-
pleted the acquisition of five smaller companies and product
lines for total consideration of $206 million in cash, including
transaction costs and net of cash acquired. These companies
were all acquired to complement existing businesses. Two of the
businesses are manufacturers of dental imaging products and
will be part of the Company’s Medical Technologies segment.
The other businesses complement the Company’s electronic
test and environmental businesses in the Professional Instru-
mentation segment. The aggregate annual sales of these
acquired businesses as of the respective dates of acquisition
were approximately $91 million.
In the first quarter of 2005 the Company acquired all of
the outstanding shares of Linx Printing Technologies PLC,
a publicly-held U.K. based coding and marking business, for
$171 million in cash, including transaction costs and net of cash
acquired of $2 million. Linx complements the Company’s prod-
identification businesses and had annual revenue of
uct
approximately $93 million in 2004. This acquisition resulted in
the recognition of goodwill of $96 million, primarily related to the
future earnings and cash flow potential of Linx and its synergies
with the Company’s existing operations. Linx has been included
in the Company’s Consolidated Statement of Earnings since
January 3, 2005.
In August 2005, the Company acquired all of the outstand-
ing shares of German-based Leica Microsystems AG, for an
aggregate purchase price of E210 million in cash, including
transaction costs and net of cash acquired of E12 million and
the assumption and repayment at closing of E125 million out-
standing Leica debt ($429 million in aggregate as of the date
of the acquisition). The Company funded this acquisition and the
repayment of debt assumed using available cash and through
borrowings under uncommitted lines of credit
totaling
$222 million, which have subsequently been repaid. Leica
complements the Company’s medical technologies business
and had annual revenues of approximately $540 million in 2004
(excluding the approximately $120 million of revenue attribut-
able to the semiconductor business that has been divested, as
described below). The Leica acquisition resulted in the recogni-
tion of goodwill of $332 million primarily related to Leica’s future
earnings and cash flow potential and world-wide leadership
position of Leica in its served markets. Leica has been included
in the Company’s Consolidated Statements of Earnings since
August 31, 2005.
In September 2005, the Company also completed the sale
of Leica’s semiconductor equipment business which was held
for sale at the time of the acquisition. This business had histori-
cally operated at a loss. Proceeds from the sale have been
reflected as a reduction in the purchase price for Leica in the
52
accompanying Consolidated Statement of Cash Flows. Operat-
ing losses for this business for the period from acquisition to dis-
position totaled approximately $1.3 million and are reflected in
“Other expense (income), net” in the accompanying Consoli-
dated Statements of Earnings.
In addition to Linx and Leica,
the Company acquired
11 smaller companies and product lines during 2005 for total con-
sideration of $285 million in cash, including transaction costs and
net of cash acquired. In general, each company is a manufacturer
and assembler of environmental or instrumentation products, in
markets such as medical technologies, electronic test, motion,
environmental, product identification, sensors and controls and
aerospace and defense. These companies were all acquired to
complement existing units of the Professional Instrumentation,
Medical Technologies or Industrial Technologies segments. The
Company recorded an aggregate of $222 million of goodwill
related to these acquired businesses. The aggregate annual sales
of these 11 acquired businesses at the time of their respective
acquisitions were approximately $260 million.
In June 2005, the Company divested one insignificant
business that was reported as a continuing operation within the
Industrial Technologies segment for aggregate proceeds of
$12.1 million in cash net of related transaction expenses. Sales
related to this divested business included in the Company’s
results for 2005 were $7.5 million. The Company recorded a
pre-tax gain of $4.6 million on the divestiture which is reported
as a component of “Other expense (income), net” in the accom-
panying Consolidated Statements of Earnings. Net cash
proceeds received on the sale are included in “Proceeds from
Divestitures” in the accompanying Consolidated Statements of
Cash Flows.
In June 2005, the Company collected $14.6 million in full
payment of a retained interest that was in the form of a $10 mil-
lion note receivable and an equity interest arising from the sale
of a prior business. The Company had recorded this note net of
applicable allowances and had not previously recognized inter-
est income on the note due to uncertainties associated with
collection of the principal balance of the note and the related
interest. As a result of the collection, during the second quarter
of 2005 the Company recorded $4.6 million of interest income
related to the cumulative interest received on this note. In addi-
tion, during the second quarter of 2005 the Company recorded
a pre-tax gain of $5.3 million related to collection of the note bal-
ance which has been recorded as a component of “Other
expense (income), net” in the accompanying Consolidated
Statements of Earnings. Cash proceeds from the collection of
the principal balance of $10 million are included in “Proceeds
from Divestitures” in the accompanying Consolidated State-
ments of Cash Flows.
In January 2004,
the Company acquired all of
the
share capital of Radiometer S/A for $684 million in cash (net
of $77 million in acquired cash), including transaction costs. In
addition, the Company assumed $66 million of debt in connec-
tion with the acquisition. Radiometer designs, manufactures,
and markets a variety of blood gas diagnostic instrumentation,
primarily in hospital applications. Radiometer also provides con-
sumables and services for its instruments. This acquisition
resulted in the recognition of goodwill of $445 million primarily
related to the anticipated future earnings and cash flow poten-
tial and worldwide leadership position of Radiometer in critical
care diagnostic instrumentation. Radiometer is a worldwide
leader in its served segments, and had total annual sales of
approximately $300 million at the time of acquisition. The
results of Radiometer have been included in the Company’s
Consolidated Statements of Earnings since January 22, 2004.
In May 2004, the Company acquired all of the outstanding
shares of Kaltenbach & Voigt GmbH (KaVo) for E350 million
($412 million) in cash, including transaction costs and net of
$45 million in acquired cash. KaVo, headquartered in Biberach,
Germany, with 2003 revenues of approximately $450 million, is
a worldwide leader in the design, manufacture and sale of dental
technology, including hand pieces, treatment units and diagnos-
tic systems and laboratory equipment. This acquisition resulted
in the recognition of goodwill of $82 million primarily related to
the anticipated future earnings of KaVo and its leadership posi-
tion in dental instrumentation. The results of KaVo have been
included in the Company’s Consolidated Statements of Earn-
ings since May 28, 2004.
In November 2004, the Company acquired all of the out-
standing shares of Trojan Technologies, Inc. for aggregate con-
sideration of $185 million in cash, including transaction costs
and net of $23 million in acquired cash. In addition, the Company
assumed $4 million of debt in connection with the acquisition.
This acquisition resulted in the recognition of goodwill of
$117 million primarily related to the anticipated future earnings.
The acquisition is being included in the Company’s Professional
Instrumentation segment in the environmental business. Trojan
is a leader in the ultraviolet disinfection market for drinking and
wastewater applications and had annual revenues of approxi-
mately $115 million at the time of acquisition. The results of
Trojan have been included in the Company’s Consolidated
Statements of Earnings since November 8, 2004.
In addition to Radiometer, KaVo, and Trojan, the Company
acquired ten smaller companies and product lines during 2004
for total consideration of $311 million in cash, including trans-
action costs and net of cash acquired. In general, each company
is a manufacturer and assembler of instrumentation products, in
markets such as medical technologies, electronic test, motion,
environmental, product identification, sensors and controls and
aerospace and defense. These companies were all acquired to
complement businesses within the Professional Instrumenta-
tion segment or in connection with the establishment of the
Medical Technologies segment. The Company recorded an
aggregate of $182 million of goodwill related to these acquired
businesses. The aggregate annual sales of these acquired busi-
nesses as of the respective dates of acquisition were approxi-
mately $280 million.
In addition, the Company sold a business that was part of
the Tools & Components segment during 2004 for approxi-
mately $43 million in cash and the proceeds have been included
in “Proceeds from Divestitures” in the accompanying Consoli-
dated Statements of Cash Flows. A gain of approximately
$1.5 million ($1.1 million net of tax) was recognized and has
been included in “Other expense (income), net” in the accompa-
nying Consolidated Statements of Earnings.
Overall
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Other intangible assets, primarily customer relationships,
trade names and patents
Accounts payable
Other assets and liabilities, net
Assumed debt
Net cash consideration
53
The following table summarizes the estimated fair values of
the assets acquired and liabilities assumed at the date of acqui-
sition for all acquisitions consummated during 2006, 2005, and
2004 and the individually significant acquisitions discussed
above (in thousands):
2006
2005
2004
$ 143,441
136,855
116,388
2,009,826
871,949
(50,057)
(389,200)
(183,167)
$ 171,978
138,626
77,088
650,261
172,362
(65,706)
(245,162)
(14,364)
$ 232,696
224,703
224,685
825,869
466,902
(67,444)
(245,826)
(69,866)
$2,656,035
$ 885,083
$1,591,719
Significant 2006 Acquisitions
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Other intangible assets, primarily
customer relationships, trade names
and patents
Accounts payable
Other assets and liabilities, net
Assumed debt
Sybron Dental
$ 103,335
108,777
91,769
1,523,348
686,900
(31,744)
(286,090)
(181,671)
Vision
$ 24,165
24,709
20,703
356,967
108,503
(8,816)
(96,189)
(1,496)
All Others
$ 15,941
3,369
3,916
129,511
76,546
(9,497)
(6,921)
—
Total
$ 143,441
136,855
116,388
2,009,826
871,949
(50,057)
(389,200)
(183,167)
Net cash consideration
$2,014,624
$428,546
$212,865
$2,656,035
Significant 2005 Acquisitions
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Other intangible assets, primarily
customer relationships, trade names
and patents
Accounts payable
Other assets and liabilities, net
Assumed debt
Leica
$ 123,064
105,454
56,239
331,806
85,592
(40,358)
(226,912)
(5,503)
Linx
$ 17,094
8,437
8,498
96,480
47,188
(7,430)
600
—
All Others
$ 31,820
24,735
12,351
221,975
39,582
(17,918)
(18,850)
(8,861)
Total
$ 171,978
138,626
77,088
650,261
172,362
(65,706)
(245,162)
(14,364)
Net cash consideration
$ 429,382
$170,867
$284,834
$ 885,083
54
Significant 2004 Acquisitions
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Other intangible assets, primarily
customer relationships, trade names
and patents
Accounts payable
Other assets and liabilities, net
Assumed debt
Radiometer
$ 66,171
40,997
86,139
445,144
KaVo
Trojan
All Others
Total
$ 98,539
131,150
96,566
81,859
$ 35,264
10,175
15,247
117,172
$ 32,722
42,381
26,733
181,694
$ 232,696
224,703
224,685
825,869
207,170
(21,121)
(74,755)
(65,923)
132,595
(10,993)
(117,922)
—
62,617
(16,063)
(35,102)
(3,943)
64,520
(19,267)
(18,047)
—
466,902
(67,444)
(245,826)
(69,866)
Net cash consideration
$683,822
$ 411,794
$185,367
$ 310,736
$1,591,719
The unaudited pro forma information for the periods set
forth below gives effect to the above noted acquisitions as if
they had occurred at the beginning of the period. The pro forma
information is presented for informational purposes only and is
not necessarily indicative of the results of operations that actu-
ally would have been achieved had the acquisitions been con-
summated as of that time (unaudited, in thousands except per
share amounts):
2006
2005
Net sales
Net earnings
Diluted earnings per share
$10,041,634 $9,372,990
$ 1,089,346 $ 867,247
2.66
3.38 $
$
In connection with its acquisitions, the Company assesses
and formulates a plan related to the future integration of the
acquired entity. This process begins during the due diligence
process and is concluded within 12 months of the acquisition.
The Company accrues estimates for certain costs, related pri-
marily to personnel reductions and facility closures or restruc-
turings, anticipated at the date of acquisition, in accordance with
Emerging Issues Task Force (EITF) Issue No. 95-3, “Recogni-
tion of Liabilities in Connection with a Purchase Business Com-
bination.” Adjustments to these estimates are made up to 12
months from the acquisition date as plans are finalized. To the
extent these accruals are not utilized for the intended purpose,
the excess is recorded as a reduction of the purchase price,
reducing recorded goodwill balances. Costs incurred in excess
of the recorded accruals are expensed as incurred. The Com-
pany is still finalizing its restructuring plans with respect to cer-
tain of its 2006 acquisitions, including Sybron Dental and Vision,
and will adjust current accrual levels to reflect such restructuring
plans as such plans are finalized.
Accrued liabilities associated with these exit activities include the following (in thousands, except headcount):
Planned Headcount Reduction:
Balance January 1, 2004
Headcount related to 2004 acquisitions
Headcount reductions in 2004
Adjustments to previously provided headcount estimates
Balance December 31, 2004
Headcount related to 2005 acquisitions
Adjustments to previously provided headcount estimates
Headcount reductions in 2005
Balance December 31, 2005
Headcount related to 2006 acquisitions
Adjustments to previously provided headcount estimates
Headcount reductions in 2006
Balance December 31, 2006
Involuntary Employee Termination Benefits:
Balance January 1, 2004
Accrual related to 2004 acquisitions
Costs incurred in 2004
Adjustments to previously provided reserves
Balance December 31, 2004
Accrual related to 2005 acquisitions
Costs incurred in 2005
Adjustments to previously provided reserves
Balance December 31, 2005
Accrual related to 2006 acquisitions
Costs incurred in 2006
Adjustments to previously provided reserves
KaVo
—
325
—
—
325
—
228
(494)
59
—
—
(10)
49
$
—
21,665
—
—
21,665
—
(15,475)
(1,516)
4,674
—
(1,419)
—
Leica
All Others
—
—
—
—
—
284
—
—
284
—
(125)
(8)
151
$
—
—
—
—
—
9,144
—
—
9,144
—
(314)
(1,303)
391
317
(601)
131
238
536
(24)
(397)
353
201
(25)
(264)
265
$ 16,796
12,358
(17,938)
2,224
13,440
15,202
(11,583)
(2,989)
14,070
14,824
(15,495)
234
55
Total
391
642
(601)
131
563
820
204
(891)
696
201
(150)
(282)
465
$ 16,796
34,023
(17,938)
2,224
35,105
24,346
(27,058)
(4,505)
27,888
14,824
(17,228)
(1,069)
Balance December 31, 2006
$ 3,255
$ 7,527
$ 13,633
$ 24,415
Facility Closure and Restructuring Costs:
Balance January 1, 2004
Accrual related to 2004 acquisitions
Costs incurred in 2004
Adjustments to previously provided reserves
Balance December 31, 2004
Accrual related to 2005 acquisitions
Costs incurred in 2005
Adjustments to previously provided reserves
Balance December 31, 2005
Accrual related to 2006 acquisitions
Costs incurred in 2006
Adjustments to previously provided reserves
$
—
16,211
—
—
16,211
—
(5,333)
(4,041)
6,837
—
(1,082)
—
$
—
—
—
—
—
8,421
—
—
8,421
—
(563)
773
$ 19,877
6,143
(11,009)
2,386
17,397
5,920
(12,631)
(3,366)
7,320
6,820
(6,663)
85
$ 19,877
22,354
(11,009)
2,386
33,608
14,341
(17,964)
(7,407)
22,578
6,820
(8,308)
858
Balance December 31, 2006
$ 5,755
$ 8,631
$ 7,562
$ 21,948
56
In 2004, the adjustments to previously provided reserves
related to the establishment of severance and facility closure
reserves for acquisitions which occurred in late 2003 and for
which plans for integrating the businesses were not finalized
until 2004. The 2005 adjustments to previously provided
reserves for KaVo reflect finalization of the restructuring plans
for this business and include costs and headcount reductions
associated with the planned sale of certain operations in lieu of
closure. All adjustments to the previously provided reserves
resulted in adjustments to Goodwill
in accordance with
EITF 95-3. Involuntary employee termination benefits are pre-
sented as a component of the Company’s compensation and
benefits accrual included in accrued expenses in the accompa-
nying balance sheet. Facility closure and restructuring costs are
reflected in other accrued expenses (See Note 6).
relies on a number of
assesses goodwill for impairment for each of its reporting units
at least annually at the beginning of the fourth quarter or as
“triggering” events occur. In making its assessment of goodwill
factors
impairment, management
including operating results, business plans, economic projec-
tions, anticipated future cash flows, and transactions and mar-
ket place data. The Company’s annual impairment test was
performed in the fourth quarters of 2006, 2005 and 2004 and
no impairment was identified. There are inherent uncertainties
related to these factors and management’s judgment in apply-
ing them to the analysis of goodwill impairment which may affect
the carrying value of goodwill.
The following table shows the rollforward of goodwill reflected
in the financial statements resulting from the Company’s acquisi-
tion activities for 2004, 2005, and 2006 ($ in millions).
(3) Inventory:
The major classes of inventory are summarized as follows
($ in thousands):
Finished goods
Work in process
Raw material
December 31,
2006
$ 427,758
186,205
391,397
$1,005,360
December 31
2005
$ 314,772
178,630
331,861
$825,263
If the first-in, first-out (FIFO) method had been used for
inventories valued at LIFO cost, such inventories would have
been $11.4 million and $9.4 million higher at December 31,
2006 and 2005, respectively.
(4) Property, Plant and Equipment:
The major classes of property, plant and equipment are summa-
rized as follows ($ in thousands):
Land and improvements
Buildings
Machinery and equipment
Less accumulated
depreciation
December 31,
2006
$
73,931
549,123
1,531,336
December 31,
2005
$
66,672
474,363
1,337,916
2,154,390
1,878,951
(1,280,022)
(1,130,779)
$ 874,368
$ 748,172
(5) Goodwill:
As discussed in Note 2, goodwill arises from the excess of the
purchase price for acquired businesses exceeding the fair value
tangible and intangible assets acquired. Management
of
Balance January 1, 2004
Attributable to 2004 acquisitions
Adjustments due to finalization of
purchase price allocations
Attributable to 2004 disposition
Effect of foreign currency translation
Balance December 31, 2004
Attributable to 2005 acquisitions
Adjustments due to finalization of
purchase price allocations
Attributable to 2005 disposition
Effect of foreign currency translation
Balance December 31, 2005
Attributable to 2006 acquisitions
Adjustments due to finalization of
purchase price allocations
Effect of foreign currency translation
Balance December 31, 2006
$3,064
826
(2)
(18)
100
$ 3,970
650
(1)
(5)
(139)
$ 4,475
2,010
(38)
149
$6,596
The Company recorded a net decrease in goodwill in 2006
primarily attributable to deferred taxes associated with the final-
ization of purchase price allocations associated with 2005
acquisitions. The carrying value of goodwill at December 31,
2006 for the Tools & Components segment, Medical Technolo-
gies segment, Professional
Instrumentation segment and
Industrial Technologies segment were approximately $194 mil-
lion, $2,924 million $1,455 million and $2,023 million, respec-
tively. The carrying value of goodwill at December 31, 2005 for
the Tools & Components segment, Medical Technologies seg-
ment, Professional
Instrumentation segment and Industrial
Technologies segment was approximately $194 million, $960
million, $1,348 million and $1,973 million, respectively. The car-
rying value of goodwill at December 31, 2004 for the Tools &
Components segment, Medical Technologies segment, Profes-
sional
Instrumentation segment and Industrial Technologies
segment was approximately $194 million, $624 million, $1,224
million and $1,928 million, respectively.
57
(6) Accrued Expenses and Other Liabilities:
Accrued expenses and other liabilities include the following ($ in thousands):
Compensation and benefits
Claims, including self-insurance and litigation
Postretirement benefits
Environmental and regulatory compliance
Taxes, income and other
Sales and product allowances
Warranty
Other, individually less than 5% of current
or total liabilities
December 31, 2006
December 31, 2005
Current
$ 465,538
82,420
10,500
46,330
437,581
163,833
84,493
Non-Current
$ 498,248
66,158
99,500
74,812
564,370
—
14,500
Current
Non-Current
$ 352,681
83,025
9,000
45,016
412,075
135,789
79,487
$378,305
71,773
97,600
76,230
297,618
—
13,650
205,669
19,486
184,708
21,226
$1,496,364
$1,337,074
$1,301,781
$956,402
Approximately $166 million of accrued expenses and other liabilities were guaranteed by standby letters of credit and performance
bonds as of December 31, 2006. The increase in non-current compensation and benefit accruals primarily relates to pension obli-
gations assumed for businesses acquired in 2006, primarily Sybron Dental (refer to Note 8 for additional information). Refer to
Note 12 for further discussion of the Company’s income tax obligations.
(7) Financing:
Financing as of December 31, 2006 consisted of the following
($ in thousands):
Notes payable due 2008
Zero-coupon convertible
senior notes due 2021
(LYONs)
Commercial paper
Notes payable due 2013
(Eurobond Notes)
Other
Less—currently payable
December 31,
2006
December 31
2005
$ 250,000
$ 250,000
594,241
866,738
580,375
—
660,150
62,587
2,433,716
10,855
—
211,347
1,041,722
183,951
$2,422,861
$ 857,771
The Notes due 2008 were issued in October 1998 at an interest
cost of 6.1%. The fair value of the 2008 Notes, after taking into
account the interest rate swaps discussed below, is approximately
$252 million at December 31, 2006. In January 2002, the Com-
pany entered into two interest rate swap agreements for the term
of the $250 million aggregate principal amount of 6.1% notes due
2008 having an aggregate notional principal amount of $100 mil-
lion whereby the effective net interest rate on $100 million of the
Notes is the six-month LIBOR rate plus approximately 0.425%.
Rates are reset twice per year. At December 31, 2006, the net
interest rate on $100 million of the Notes was 5.8% after giving
effect to the interest rate swap agreement. In accordance with
SFAS No. 133 (“Accounting for Derivative Instruments and Hedg-
ing Activities”, as amended), the Company accounts for these swap
agreements as fair value hedges. These instruments qualify as
“effective” or “perfect” hedges.
In 2001, the Company issued $830 million (value at
maturity) in LYONs. The net proceeds to the Company were
$505 million, of which approximately $100 million was used to
pay down debt and the balance was used for general corporate
purposes,
including acquisitions. The LYONs carry a yield
to maturity of 2.375% (with contingent interest payable as
described below). Holders of the LYONs may convert each of
their LYONs into 14.5352 shares of Danaher common stock (in
the aggregate for all LYONs, approximately 12.0 million shares
of Danaher common stock) at any time on or before the maturity
date of January 22, 2021. As of December 31, 2006, the
accreted value of the outstanding LYONs was $49 per share,
which, at that date, was lower than the traded market value of the
underlying common stock issuable upon conversion. The Com-
pany may offer to redeem all or a portion of the LYONs for cash
at any time. Holders may require the Company to purchase all
or a portion of the notes for cash and/or Company common
stock, at the Company’s option, on January 22, 2011. The hold-
ers had a similar option to require the Company to purchase all
or a portion of the notes as of January 22, 2004, which resulted
in notes with an accreted value of $1.1 million being redeemed
by the Company for cash.
The Company will pay contingent interest to the holders of
LYONs during any six-month period commencing after
January 22, 2004 if the average market price of a LYON for a
measurement period preceding such six-month period equals
120% or more of the sum of the issue price and accrued original
issue discount for such LYON. The amount of contingent inter-
est to be paid is equal to the higher of either 0.0315% percent
of the bonds’ market value measured by its five day trading
average price preceeding the record date or the equivalent com-
mon stock dividend. Contingent interest payable for the six
month period from July 1, 2006 to December 31, 2006 is
58
approximately $0.5 million. Except for the contingent interest
described above, the Company will not pay interest on the
LYONs prior to maturity.
The Company primarily satisfies its short-term liquidity
needs through issuances of U.S. dollar and Euro commercial
paper. Under the Company’s U.S. and Euro commercial paper
programs, the Company or its subsidiary may issue and sell
unsecured, short-term promissory notes in aggregate principal
amount not to exceed $2.2 billion. The Company issued $2 bil-
lion of commercial paper in May 2006 and used the proceeds
principally to fund its acquisition of Sybron Dental. Subsequent
to May 2006, the Company has used available cash flow and the
proceeds from the Eurobond Note offering (see below) to
reduce outstanding borrowings under the commercial paper
programs. In November and December 2006, the Company
again utilized its commercial paper program to fund the acqui-
sition of Vision. As of December 31, 2006, $80 million remained
outstanding under the U.S. dollar commercial paper program
with an average interest rate of 5.34% and an average maturity
of 3 days and $787 million remained outstanding under the
Euro-denominated commercial paper program (E596 million)
with an average interest rate of 3.87% and an average maturity
of 64 days.
Credit support for the commercial paper programs is pro-
vided by an unsecured $1.5 billion multicurrency revolving credit
facility (the “Credit Facility”) which the Company entered into in
April 2006 to replace two existing $500 million credit facilities.
The Credit Facility expires on April 25, 2011, subject to a one-
year extension option at the request of Danaher and with the
consent of the lenders. The Credit Facility can also be used for
working capital and other general corporate purposes. Interest
is based on either (1) a LIBOR-based formula, (2) a formula
based on the lender’s prime rate or on the Federal funds rate, or
(3) the rate of interest bid by a particular lender for a particular
loan under the Credit Facility. In May 2006 the Company and
certain of its subsidiaries entered into an unsecured $700 mil-
lion multicurrency revolving credit facility (the “Secondary Credit
Facility”) on terms substantially similar to those under the Credit
Facility that was also available to provide credit support for the
Company’s commercial paper and for working capital and other
general corporate purposes. The Company terminated the Sec-
ondary Credit Facility on October 11, 2006, which has the
practical effect of reducing from $2.2 billion to $1.5 billion the
maximum amount of commercial paper that the Company can
issue under the commercial paper program. There were no bor-
rowings under either the Credit Facility or the Secondary Credit
Facility, or either of the terminated credit facilities, during 2006.
The Company has classified $867 million of borrowings
under the commercial paper program as long-term borrow-
ings in the accompanying Consolidated Balance Sheet as the
Company has the intent and ability, as supported by availability
under the above mentioned Credit Facility, to refinance these
borrowings for at least one year from the balance sheet date.
During the first quarter of 2006, the Company borrowed
$120 million under uncommitted lines of credit in connection
with the investment in the shares of First Technology noted
above and other matters. These borrowings, along with all
borrowings incurred in 2005 under uncommitted lines of credit
associated with the purchase of Leica, which totaled $177 mil-
lion as of December 31, 2005, were fully repaid in the first
quarter of 2006.
On July 21, 2006, a financing subsidiary of the Company
issued E500 million ($630 million) of 4.5% guaranteed notes
due July 22, 2013, with a fixed re-offer price of 99.623 (the
“Eurobond Notes”) in a private placement outside the U.S. Pay-
ment obligations under these Eurobond Notes are guaranteed
by the Company. The fair value of the Eurobond notes is approxi-
mately $659 million at December 31, 2006. The net proceeds
of the offering, after the deduction of underwriting commissions
but prior to the deduction of other issuance costs, were
E496 million ($627 million) and were used to pay down a por-
tion of the Company’s outstanding commercial paper and for
general corporate purposes. The Eurobond notes, as well as the
European component of the commercial paper program which,
as of December 31, 2006, had outstanding borrowings equiva-
lent to $1,446.9 million, provides a natural hedge to a portion of
the Company’s European net asset position.
The Company does not have any rating downgrade triggers
that would accelerate the maturity of a material amount of out-
standing debt. However, a downgrade in the Company’s credit
rating would increase the cost of borrowings under the Compa-
ny’s commercial paper program and credit facilities and could
limit, or in the case of a significant downgrade, preclude the
Company’s ability to issue commercial paper. The Company’s
outstanding indentures and comparable instruments contain
customary covenants including for example limits on the incur-
rence of secured debt and sale/leaseback transactions. None
of these covenants are considered restrictive to the Company’s
operations and as of December 31, 2006, the Company was in
compliance with all of its debt covenants.
The minimum principal payments during the next five years
are as follows: 2007—$11 million; 2008—$258 million;
2009—$5 million; 2010—$9 million, 2011—$878 million and
$1,272 million thereafter.
The Company made interest payments of $48 million,
$43 million and, $46 million in 2006, 2005 and 2004, respectively.
(8) Pension Benefit Plans:
On December 31, 2006, the Company adopted the recognition
and disclosure provisions of SFAS No. 158,
“Employers’
Accounting for Defined Benefit Pension and Other Postretire-
ment Plans—an amendment of FASB Statements No. 87, 88,
106 and 132(R).” SFAS No. 158 requires the Company to rec-
ognize the funded status (i.e., the difference between the fair
value of plan assets and the projected benefit obligations) of its
pension and other postretirement plans in the December 31,
2006 statement of financial position, with a corresponding
adjustment to accumulated other comprehensive income, net of
tax. The adjustment to accumulated other comprehensive
income at adoption represents the net unrecognized actuarial
losses, unrecognized prior service costs, and unrecognized
transition obligation remaining from the initial adoption of
SFAS No. 87, all of which were previously netted against the
plan’s funded status in the Company’s statement of financial
59
position pursuant to the provisions of SFAS No. 87. These
amounts will be subsequently recognized as net periodic pen-
sion cost pursuant to the Company’s historical accounting policy
for amortizing such amounts. Further, actuarial gains and losses
that arise in subsequent periods and are not recognized as net
periodic pension cost in the same periods will be recognized as
a component of other comprehensive income. Those amounts
will be subsequently recognized as a component of net periodic
pension cost on the same basis as the amounts recognized
in accumulated other comprehensive income at adoption of
SFAS No. 158.
The incremental effects of adopting the provisions of
SFAS No. 158 on the Company’s statement of financial position
at December 31, 2006 are presented in the following table for
pension benefit plans (see Note 9 regarding Other Post-
Retirement Employee Benefit Plans). The adoption of SFAS No.
158 had no effect on the Company’s consolidated statement of
earnings for the year ended December 31, 2006, or for any prior
period presented, and it will not affect the Company’s operating
results in future periods. Had the Company not been required to
adopt SFAS No. 158 at December 31, 2006, it would have rec-
ognized an additional minimum pension liability pursuant to the
provisions of SFAS No. 87. The effect of recognizing the addi-
tional minimum liability is included in the table below in the
column labeled “Prior to Adopting SFAS No. 158.”
US Pension Benefits
Pension liability
Accumulated other comprehensive loss (income), after
income tax effect
Non-US Pension Benefits
Pension liability
Accumulated other comprehensive loss (income), after
income tax effect
Total Pension Benefits
Pension liability
Accumulated other comprehensive loss (income), after
income tax effect
As of December 31, 2006
($ in millions)
Effect of
Adopting
SFAS 158
—
—
13.0
(9.1)
13.0
(9.1)
Prior to
Adopting
SFAS 158
$(114.3)
98.9
$(222.9)
15.9
$ (337.2)
114.8
As
Reported
$(114.3)
98.9
$(209.9)
6.8
$(324.2)
105.7
Included in accumulated other comprehensive income at
December 31, 2006 are the following amounts that have not
yet been recognized in net periodic pension cost: unrecognized
prior service credits of $2.4 million ($1.7 million, net of tax) and
unrecognized actuarial losses of $164.3 million ($107.4 million,
net of tax). The prior service credits and actuarial loss included
in accumulated comprehensive income and expected to be rec-
ognized in net periodic pension costs during the year ending
December 31, 2007 is $0.2 million ($0.1 million, net of tax) and
$1.3 million ($0.9 million, net of tax), respectively. No plan assets
are expected to be returned to the Company during the year
ending December 31, 2007.
Due to previous equity market declines, the fair value of
the Company’s pension fund assets has decreased below the
accumulated benefit obligation due to the participants in the
U.S. plan. In addition, certain non-U.S. plans are not fully funded.
As a result,
in accordance with SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretire-
ment Plans, an Amendment of FASB Statements No. 87, 88,
106 and 132(R)”, the Company has recorded unrecognized
losses and prior service costs of $161.9 million ($105.7 million
net of tax benefits) cumulatively through December 31, 2006.
The unrecognized losses and prior service costs, net, is calcu-
lated as the difference between the actuarially determined pro-
jected benefit obligation and the value of the plan assets less
accrued pension costs as of September 30, 2006. This adjust-
ment results in a direct reduction of stockholders’ equity and
does not immediately impact net earnings.
60
The Company has noncontributory defined benefit pension plans which cover certain of its domestic employees. Benefit accru-
als under most of these plans have ceased. It is the Company’s policy to fund, at a minimum, amounts required by the Internal Revenue
Service. The Company acquired Leica Microsystems in August 2005, including its pension plans. The Company acquired Sybron
Dental in May 2006, including its pension plans. The following sets forth the funded status of the U.S. and non-U.S. plans as of the
most recent actuarial valuations using a measurement date of September 30 ($in millions):
Change in pension benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Employee contributions
Amendments and other
Benefits paid and other
Acquisition (transfer or divestiture)
Effect of plan combinations
Actuarial loss (gain)
Foreign exchange rate impact
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Plan settlements
Benefits paid and other
Acquisition (transfer or divestiture)
Foreign exchange rate impact
Fair value of plan assets at end of year
Funded status
Accrued contribution
Unrecognized loss
Prepaid (accrued) benefit cost
U.S. Pension Benefits
Non-U.S. Pension Benefits
2006
2005
2006
2005
$ 629.8
4.7
36.9
—
—
(43.5)
59.5
—
8.2
—
695.6
509.7
44.4
11.3
—
—
(43.5)
59.4
—
581.3
(114.3)
—
—
$ 573.0
2.1
31.8
—
—
(41.7)
58.0
—
6.6
—
629.8
474.9
36.1
0.8
—
—
(41.8)
39.7
—
509.7
(120.1)
10.8
190.1
$ 447.0
10.9
19.4
2.1
(9.1)
(26.1)
51.2
0.2
(13.9)
50.6
532.3
235.6
18.4
21.3
2.2
(4.0)
(26.1)
39.9
27.8
315.1
(217.3)
7.4
—
$ 96.4
4.2
8.6
—
—
(3.6)
351.6
—
20.3
(30.5)
447.0
48.4
14.0
4.2
—
—
(3.6)
189.0
(16.4)
235.6
(211.4)
3.6
21.8
$(114.3)
$ 80.8
$(209.9)
$(186.0)
The combined underfunded status of the U.S. and Non-U.S. pension plans of $324.2 million at December 31, 2006 is recognized
in the accompanying statement of financial position as long-term accrued pension liability.
Weighted average assumptions used to determine benefit obligations measured at September 30:
Discount rate
Rate of compensation increase
U.S. Plans
Non-U.S. Plans
2006
5.75%
4.00%
2005
5.50%
4.00%
2006
4.35%
2.95%
2005
4.05%
3.00%
Components of net periodic pension cost
($in millions)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of net (gain) loss
Curtailment and settlement (gains)/losses recognized
Net periodic pension cost
61
U.S. Pension Benefits
Non-U.S. Pension Benefits
2006
2005
2006
2005
$ 4.7
36.9
(41.5)
—
16.9
—
$ 17.0
$ 2.1
31.8
(37.8)
—
12.0
—
$ 8.1
$ 10.8
19.4
(12.9)
(0.2)
1.7
(2.8)
$ 16.0
$ 4.2
8.6
(5.0)
—
(0.1)
—
$ 7.7
Weighted average assumptions used to determine net periodic pension cost measured at September 30:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
U.S. Plans
Non-U.S. Plans
2006
5.50%
8.00%
4.00%
2005
5.75%
8.00%
4.00%
2006
4.00%
5.00%
2.95%
2005
4.80%
6.10%
2.65%
Selection of Expected Rate of Return on Assets
For 2006, 2005, and 2004, the Company used an expected long-term rate of return assumption of 8.0%, 8.0% and, 8.5%, respec-
tively, for the Company’s U.S. defined benefit pension plan. The Company intends on using an expected long-term rate of return
assumption of 8.0% for 2007 for its U.S. plan. The expected long-term rate of return assumption for the non-U.S. plans was
determined on a plan-by-plan basis based on the composition of assets and ranged from 2.5% to 6.5% in 2006.
Investment Policy
The US plan’s goal is to maintain between 60% to 70% of its assets in equity portfolios, which are invested in funds that are expected
to mirror broad market returns for equity securities. Asset holdings are periodically rebalanced when equity holdings are outside this
range. The balance of the asset portfolio is invested in corporate bonds and bond index funds. Non-U.S. plan assets are invested
in various insurance contracts, equity and debt securities as determined by the administrator of each plan.
Asset Information
% of measurement date assets by asset categories
Equity securities
Debt securities
Cash & Other
Total
U.S. Pension Benefits
Non-U.S. Pension Benefits
2006
2005
64%
36%
—
100%
71%
26%
3%
100%
2006
31%
36%
33%
100%
2005
29%
48%
23%
100%
Expected Contributions
While not statutorily required to make contributions to the plan for 2005 or 2006, the Company contributed $10 million to the U.S. plans
in December 2005. The Company made no contributions to the U.S. plans and $25 million to the non-U.S. plans in 2006. The Company
is not required to and has no plans to make contributions to the U.S. plans in 2007. The Company expects to contribute approximately
$22 million to the non-U.S. plans in 2007.
62
The following table sets forth, in millions of dollars, benefit
payments, which reflect expected future service, as appropriate,
expected to be paid in the periods indicated.
($in millions)
2007
2008
2009
2010
2011
2012–2016
U.S. Pension
Plans
Non-U.S.
Pension Plans
All Pension
Plans
$ 41.8
41.8
43.1
44.0
43.9
233.5
$ 21.7
22.9
24.5
25.3
27.0
130.7
$ 63.5
64.7
67.6
69.3
70.9
364.2
Other Matters
Substantially all employees not covered by defined benefit plans
are covered by defined contribution plans, which generally pro-
vide funding based on a percentage of compensation.
Pension expense for all plans amounted to $88.0 million,
the years ended
$66.4 million and, $63.0 million for
December 31, 2006, 2005 and 2004, respectively.
9. Other Post Retirement Employee Benefit Plans:
In addition to providing pension benefits, the Company provides
certain health care and life insurance benefits for some of its
retired employees in the United States. Certain employees
may become eligible for these benefits as they reach normal
retirement age while working for the Company. The following
sets forth the funded status of the domestic plans as of the most
recent actuarial valuations using a measurement date of
September 30 ($in millions):
Change in benefit
obligation
Benefit obligation at
beginning of year
Service cost
Interest cost
Amendments and other
Actuarial loss (gain)
Acquisition (transfer or
divestiture)
Retiree contributions
Benefits paid
Benefit obligation at end
of year
Change in plan assets
Fair value of plan assets at
beginning and end of year
Funded status
Accrued contribution
Unrecognized loss
Unrecognized prior service
credit
Post Retirement
Medical Benefits
2006
2005
$ 105.5
0.9
5.8
(3.3)
(7.0)
19.2
2.5
(11.3)
$ 123.8
0.7
6.3
(10.3)
(6.5)
0.6
2.4
(11.6)
112.3
105.4
—
(112.3)
2.3
—
—
(105.4)
1.7
46.0
—
(48.9)
Accrued benefit cost
$(110.0)
$(106.6)
At December 31, 2006, $99.5 million of the total underfunded
status of the plan was recognized as long-term accrued post
retirement liability since it is not expected to be funded within
one year. No plan assets are expected to be returned to the
Company during the fiscal year-ending December 31, 2007.
Weighted average assumptions used to determine
benefit obligations measured at September 30:
Discount rate
Medical trend rate—initial
Medical trend rate—grading
period
Medical trend rate—ultimate
2006
5.75%
9.00%
2005
5.50%
10.00%
5 years
5.00%
5 years
5.00%
The medical trend rate used to determine the post retirement
benefit obligation was 9% for 2006. The rate decreases gradu-
ally to an ultimate rate of 5% in 2011, and remains at that level
thereafter. The trend is a significant factor in determining the
amounts reported.
The following table sets forth, in million of dollars, benefit
payments, which reflect expected future service, as appropriate,
expected to be paid in the periods indicated.
2007
2008
2009
2010
2011
2012–2016
Amount
($in millions)
$10.5
10.9
11.1
11.0
10.9
49.7
Effect of a one-percentage-point change in assumed
health care cost trend rates ($in millions)
Effect on the total of service and
interest cost components
Effect on post retirement
medical benefit obligation
Components of net
periodic benefit cost
($in millions)
Service cost
Interest cost
Amortization of loss
Amortization of prior
service credit
Net periodic benefit cost
1% Point
Increase
1% Point
Decrease
$0.5
7.3
$(0.5)
(6.6)
Post Retirement
Medical Benefits
2006
2005
$ 0.9
5.8
4.1
(7.2)
$ 3.6
$ 0.7
6.3
3.0
(4.7)
$ 5.3
The incremental effects of adopting the provisions of SFAS
No. 158 on the Company’s statement of financial position at
December 31, 2006 are presented in the following table for
other post-retirement employee benefit plans:
As of December 31, 2006
($in millions)
Prior to
Adopting
SFAS 158
Effect of
Adopting
SFAS 158
As
Reported
$(120.0)
10.0
$(110.0)
—
(6.5)
(6.5)
Other Post
Retirement
Benefits liability
Accumulated other
comprehensive
loss (income),
after income
tax effect
63
Included in accumulated other comprehensive income at
December 31, 2006 are the following amounts that have not yet
been recognized in net periodic pension cost: unrecognized
prior service credits of $45.0 million ($29.3 million, net of tax)
and unrecognized actuarial losses of $35.0 million ($22.8 mil-
lion, net of tax). The prior service cost and actuarial loss included
in accumulated comprehensive income and expected to be rec-
ognized in net periodic pension costs during the year ending
December 31, 2007 is $7.2 million ($4.7 million, net of tax) and
$3.4 million ($2.2 million, net of tax), respectively.
In accordance with SFAS No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans, an
Amendment of FASB Statements No. 87, 88, 106 and 132(R)”,
the Company has recorded unrecognized losses and prior ser-
vice credits of $10.0 million ($6.5 million net of tax benefits)
cumulatively through December 31, 2006. The unrecognized
losses and prior service costs, net, is calculated as the differ-
ence between the actuarially determined projected benefit obli-
gation and the value of the plan assets less accrued pension
costs as of September 30, 2006. This adjustment results in a
direct reduction of stockholders’ equity and does not immedi-
ately impact net earnings.
Other Matters
In May 2004, the Financial Accounting Standards Board issued
Staff Position No. 106-2 (“FSP 106-2”), “Accounting and Dis-
closure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003” (the “Act”).
The Act introduces a prescription drug benefit under Medicare
(“Medicare Part D”) as well as a federal subsidy to sponsors of
post-retirement health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. FSP
106-2 provides authoritative guidance on the accounting for
the federal subsidy and specifies the disclosure requirements
for employers who have adopted FSP 106-2. FSP 106-2 was
effective for the Company’s third quarter of 2004 and was
reflected for all of 2005. Detailed final regulations necessary to
implement the Act were issued in 2005, including those that
specify the manner in which actuarial equivalency must be
determined, the evidence required to demonstrate actuarial
equivalency, and the documentation requirements necessary to
be entitled to the subsidy based on an actuarial analysis pre-
pared in 2005. The Company has confirmed that certain benefit
options within its retiree medical plans provide benefits that are
at least actuarially equivalent to Medicare Part D. As a result, the
accrued post-retirement benefit obligation reflects a reduction
of $6 million at December 31, 2006, the annual net periodic
benefit cost for the year ended December 31, 2006 was
reduced by $1 million, and the accumulated postretirement
benefit obligation as of December 31, 2006 was reduced by
$10 million.
(10) 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 mini-
mum rental payments for all operating leases having initial or
remaining non-cancelable lease terms in excess of one year are
64
$77 million in 2007, $56 million in 2008, $59 million in 2009,
$32 million in 2010, $24 million in 2011 and $42 million thereaf-
ter. Total rent expense charged to income for all operating leases
was $84 million, $68 million and, $62 million, for the years ended
December 31, 2006, 2005, and 2004, respectively.
The Company generally accrues estimated warranty costs
at the time of sale. In general, manufactured products are war-
ranted against defects in material and workmanship when prop-
erly used for their intended purpose, installed correctly, and
appropriately maintained. Warranty period terms depend on the
nature of the product and range from 90 days up to the life of
the product. The amount of the accrued warranty liability is
determined based on historical information such as past expe-
rience, product failure rates or number of units repaired,
estimated cost of material and labor, and in certain instances
estimated property damage. The liability, shown in the following
table, is reviewed on a quarterly basis and may be adjusted as
additional
information regarding expected warranty costs
becomes known.
In certain cases the Company will sell extended warranty or
maintenance agreements. The proceeds from these agree-
ments is deferred and recognized as revenue over the term of
the agreement.
The following is a rollforward of the Company’s warranty
accrual for the years ended December 31, 2006 and 2005
($in 000’s):
Balance December 31, 2004
Accruals for warranties issued during period
Settlements made
Additions due to acquisitions
Balance December 31, 2005
Accruals for warranties issued during period
Settlements made
Additions due to acquisitions
Balance December 31, 2006
$ 80,106
86,519
(84,808)
11,320
93,137
94,083
(93,594)
5,367
$ 98,993
(11) Litigation and Contingencies:
Accu-Sort, Inc., a subsidiary of the Company, was a defendant in a
suit filed by Federal Express Corporation on May 16, 2001 and
subsequently removed to the United States District Court for the
Western District of Tennessee alleging breach of contract, misap-
propriation of trade secrets, breach of fiduciary duty, unjust enrich-
ment and conversion. On March 9, 2006 Accu-Sort settled the
case with Federal Express for an amount which the Company
believes is not material to its financial position. Pursuant to the
settlement, the parties agreed to a release of claims related to the
litigation and on March 10, 2006 jointly dismissed the litigation with
prejudice. The settlement of this litigation was reflected in the
results of operations in 2005. The purchase agreement pursuant
to which the Company acquired Accu-Sort in 2003 provides cer-
tain indemnification for the Company with respect to this matter,
and an arbitrator has ordered the former owners of Accu-Sort to
pay the Company a portion of the losses incurred by the Company
in connection with this litigation. The Company is pursuing
collection of this amount and the amount will be recorded as
income when collected.
The Company is, from time to time, subject to a variety of liti-
gation incidental to its business. These lawsuits primarily involve
claims for damages arising out of the use of the Company’s
products, claims relating to intellectual property matters and
claims involving employment matters and commercial disputes.
The Company may also become subject to lawsuits as a result
of past or future acquisitions. Some of these lawsuits include
claims for punitive and consequential as well as compensatory
damages. While the Company maintains workers compensa-
tion, property, cargo, automobile, crime, fiduciary, product, gen-
eral liability, and directors’ and officers’ liability insurance (and
has acquired rights under similar policies in connection with cer-
tain acquisitions) that it believes cover a portion of these claims,
this insurance may be insufficient or unavailable to protect the
Company against potential loss exposures. In addition, while the
Company believes it is entitled to indemnification from third par-
ties for some of these claims, these rights may also be insuffi-
cient or unavailable to protect the Company against potential
loss exposures. The Company believes that the results of these
litigation matters and other pending legal proceedings will not
have a materially adverse effect on its cash flows or financial
condition, even before taking into account any related insurance
or indemnification recoveries.
The Company maintains third party insurance policies up to
certain limits to cover liability costs in excess of predetermined
retained amounts. The Company carries significant deductibles
and self-insured retentions under its insurance policies, and
management believes that the Company maintains adequate
accruals to cover the retained liability. Management determines
the Company’s accrual for self-insurance liability based on
claims filed and an estimate of claims incurred but not yet
reported.
The Company’s Certificate of Incorporation requires it to
indemnify to the full extent authorized or permitted by law any
person made, or threatened to be made a party to any action or
proceeding by reason of his or her service as a director or officer
of the Company, or by reason of serving at the request of the
Company as a director or officer of any other entity, subject to
limited exceptions. While the Company maintains insurance for
this type of liability, a significant deductible applies to this cov-
erage and any such liability could exceed the amount of the
insurance coverage.
In addition, certain of the Company’s operations are subject
to environmental
laws and regulations in the jurisdictions
in which they operate, which impose limitations on the discharge
of pollutants into the ground, air and water and establish
standards for the generation, treatment, use, storage and dis-
posal of solid and hazardous wastes. The Company must also
comply with various health and safety regulations in both the
United States and abroad in connection with its operations.
Compliance with these laws and regulations has not had and,
based on current information and the applicable laws and regu-
lations currently in effect, is not expected to have a material
adverse effect on the Company’s capital expenditures, earnings
or competitive position.
65
In addition to environmental compliance costs, the Company
may incur costs related to alleged environmental damage asso-
ciated with past or current waste disposal practices or other
hazardous materials handling practices. For example, generators
of hazardous substances found in disposal sites at which environ-
mental problems are alleged to exist, as well as the owners of those
sites and certain other classes of persons, are subject to claims
brought by state and federal regulatory agencies pursuant to statu-
tory authority. The Company has received notification from the U.S.
Environmental Protection Agency, and from state and non-U.S.
environmental agencies, that conditions at a number of sites where
the Company and others disposed of hazardous wastes require
clean-up and other possible remedial action, including sites where
the Company has been identified as a potentially responsible party
under federal and state environmental laws and regulations. The
Company has projects underway at several current and former
manufacturing facilities, in both the United States and abroad, to
investigate and remediate environmental contamination resulting
from past operations. The Company is also from time to time party
to personal injury or other claims brought by private parties alleging
injury due to the presence of or exposure to hazardous substances.
The Company has made a provision for environmental
remediation and environmental-related personal injury claims.
The Company generally makes an assessment of the costs
involved for its remediation efforts based on environmental
studies as well as its prior experience with similar sites. If the
Company determines that it has potential remediation liability
for properties currently owned or previously sold, it accrues the
total estimated costs, including investigation and remediation
costs, associated with the site. The Company also estimates its
exposure for environmental-related personal injury claims and
accrues for this estimated liability as such claims become
known. While the Company actively pursues appropriate insur-
ance recoveries as well as appropriate recoveries from other
potentially responsible parties, it does not recognize any insur-
ance recoveries for environmental liability claims until realization
is deemed probable. The ultimate cost of site cleanup is difficult
to predict given the uncertainties of the Company’s involvement
in certain sites, uncertainties regarding the extent of the
required cleanup, the availability of alternative cleanup methods,
variations in the interpretation of applicable laws and regula-
tions, the possibility of insurance recoveries with respect to cer-
tain sites and the fact that imposition of joint and several liability
with right of contribution is possible under the Comprehensive
Environmental Response, Compensation and Liability Act of
1980 and other environmental laws and regulations. As such,
there can be no assurance that the Company’s estimates of
environmental liabilities will not change.
In view of the Company’s financial position and reserves for
environmental matters and based on current information and
the applicable laws and regulations currently in effect, the Com-
pany believes that its liability, if any, related to past or current
waste disposal practices and other hazardous materials han-
dling practices will not have a material adverse effect on its
results of operations, financial condition or cash flow.
As of December 31, 2006, the Company had no known
probable but inestimable exposures that are expected to have
a material effect on the Company’s financial position and results
of operations.
66
(12) Income Taxes:
The provision for income taxes for the years ended December 31 consists of the following ($in thousands):
Current:
Federal U.S.
Other than U.S.
State and local
Deferred:
Federal U.S.
Other than U.S.
State and Local
Income tax provision
2006
2005
2004
$145,591
133,827
20,571
29,604
(12,982)
7,532
$ 96,918
124,160
12,654
87,561
9,903
5,446
$ 18,900
106,945
9,816
179,677
(9,605)
5,984
$324,143
$336,642
$ 311,717
Current deferred income tax assets are reflected in prepaid expenses and other current assets. Long-term deferred income
tax liabilities are included in other long-term liabilities in the accompanying balance sheets. Deferred income taxes consist of the
following ($in thousands):
Bad debt allowance
Inventories
Property, plant and equipment
Pension and postretirement benefits
Insurance, including self-insurance
Basis difference in LYONs Notes
Goodwill and other intangibles
Environmental and regulatory compliance
Other accruals and prepayments
Deferred service income
Stock compensation expense
Tax credit and loss carryforwards
All other accounts
Net deferred tax liability
2006
$ 15,377
60,583
(37,595)
102,471
(60,126)
(82,870)
(613,491)
26,764
168,497
(156,644)
16,778
126,115
331
$(433,810)
2005
$ 10,208
63,727
(49,220)
56,969
(29,660)
(64,981)
(299,328)
29,941
100,217
(145,657)
—
83,554
(15,448)
$ (259,678)
Deferred taxes associated with temporary differences resulting from timing of recognition for income tax purposes of fees paid
for services rendered between consolidated entities are reflected as deferred service income in the above table. These fees are fully
eliminated in consolidation and have no effect on reported revenue, income or reported income tax expense.
The effective income tax rate for the years ended December 31 varies from the statutory federal income tax rate as follows:
Statutory federal income tax rate
Increase (decrease) in tax rate resulting from:
Basis difference on sale of business
State income taxes (net of Federal income tax benefit)
Taxes on foreign earnings
German tax credit
Foreign tax credit valuation allowances
Research and experimentation credits and other
Percentage of Pre-tax Earnings
2006
35.0%
2005
35.0%
2004
35.0%
—
1.5
(8.9)
(1.4)
(2.4)
(1.4)
0.1
1.0
(8.3)
—
—
(0.5)
0.6
1.0
(6.6)
—
—
(0.5)
Effective income tax rate
22.4%
27.3%
29.5%
The Company’s effective income tax rate for 2006 benefited
from the reduction of valuation allowances related to foreign tax
credit carryforwards that are now expected to be realized, the
favorable resolution of examinations of certain previously filed
returns which resulted in the reduction of previously provided
tax reserves and the impact of a change in German tax law which
entitles the Company to cash payments in lieu of previously held
unrecognized tax credits.
The Company made income tax payments of $204 million,
$168 million and, $127 million in 2006, 2005, and 2004,
respectively. The Company recognized a tax benefit of $36 mil-
lion, $15 million, and $17 million in 2006, 2005 and 2004,
respectively, related to the exercise of employee stock options,
which vested prior to the Company’s adoption of SFAS 123R
and for which no expense was recognized. This benefit has been
recorded as an increase to additional paid-in capital.
Included in deferred income taxes as of December 31, 2006
are tax benefits for U.S. and non-U.S. net operating loss carryfor-
wards totaling $65 million (net of applicable valuation allowances
of $124 million). Certain of the losses can be carried forward
indefinitely and others can be carried forward to various dates
through 2026. The recognition of any future benefit resulting from
the reduction of valuation allowance established in purchase
accounting will reduce goodwill of the acquired business. In addi-
tion, the Company had general business and foreign tax credit
carryforwards of $61 million at December 31, 2006.
67
The Company provides income taxes for unremitted earn-
ings of foreign subsidiaries that are not considered permanently
reinvested overseas. As of December 31, 2006, the approxi-
mate amount of earnings from foreign subsidiaries that
the Company considers permanently reinvested and for which
deferred taxes have not been provided was approximately
$3.4 billion. United States income taxes have not been provided
on earnings that are planned to be reinvested indefinitely out-
side the United States and the amount of such taxes that may
be applicable is not readily determinable given the various tax
planning alternatives the Company could employ should it
decide to repatriate these earnings.
The Company’s legal and tax structure reflects both the
number of acquisitions and dispositions that have occurred over
the years as well as the multi-jurisdictional nature of the Com-
pany’s businesses. Management performs a comprehensive
review of its global tax positions on a quarterly basis and accrues
amounts for potential tax contingencies. Based on these
reviews and the result of discussions and resolutions of matters
with certain tax authorities and the closure of tax years subject
to tax audit, reserves are adjusted as necessary. Reserves for
these tax matters are included in “Taxes, income and other” in
accrued expenses as detailed in Note 6 in the accompanying
financial statements.
68
(13) Earnings Per Share (EPS):
Basic EPS is calculated by dividing earnings by the weighted-average number of common shares outstanding for the applicable
period. Diluted EPS is calculated after adjusting the numerator and the denominator of the basic EPS calculation for the effect of
all potential dilutive common shares outstanding during the period. Information related to the calculation of earnings per share of
common stock is summarized as follows (in thousands, except per share amounts):
For the Year Ended December 31, 2006:
Basic EPS
Adjustment for interest on convertible debentures
Incremental shares from assumed exercise of dilutive options
and RSUs
Incremental shares from assumed conversion of the
convertible debentures
Diluted EPS
For the Year Ended December 31, 2005:
Basic EPS
Adjustment for interest on convertible debentures
Incremental shares from assumed exercise of dilutive options
and RSUs
Incremental shares from assumed conversion of the
convertible debentures
Diluted EPS
For the Year Ended December 31, 2004:
Basic EPS
Adjustment for interest on convertible debentures
Incremental shares from assumed exercise of dilutive options
and RSUs
Incremental shares from assumed conversion of the
convertible debentures
Diluted EPS
Net Earnings
(Numerator)
$1,122,029
9,343
—
—
$1,131,372
Net Earnings
(Numerator)
$ 897,800
8,802
—
—
$ 906,602
Net Earnings
(Numerator)
$ 746,000
8,598
—
—
$ 754,598
Shares
(Denominator)
307,984
—
5,229
12,038
325,251
Shares
(Denominator)
308,905
—
7,040
12,038
327,983
Shares
(Denominator)
308,964
—
6,699
12,038
327,701
Per Share
Amount
$3.64
$3.48
Per Share
Amount
$2.91
$2.76
Per Share
Amount
$2.41
$2.30
(14) Stock Transactions:
On April 21, 2005, the Company’s Board of Directors authorized
the repurchase of up to 10 million shares of the Company’s
common stock from time to time on the open market or in pri-
vately negotiated transactions. There is no expiration date for
the Company’s repurchase program. The timing and amount of
any shares repurchased will be determined by the Company’s
management based on its evaluation of market conditions and
other factors. The repurchase program may be suspended or
discontinued at any time. Any repurchased shares will be avail-
able for use in connection with the Company’s 1998 Stock
Option Plan or successor plan and for other corporate purposes.
During 2005, the Company repurchased approximately
5 million shares of Company common stock in open market
transactions at an aggregate cost of $258 million. The repur-
chases were funded from available cash and from borrowings
under uncommitted lines of credit. No shares were repurchased
under this program in 2006. At December 31, 2006, the
Company had approximately 5 million shares remaining for
stock repurchases under the existing Board authorization. The
Company expects to fund any further repurchases using the
Company’s available cash balances or existing lines of credit.
On April 22, 2004, the company’s Board of Directors
declared a two-for-one split of its common stock. The split was
effected in the form of a stock dividend paid on May 20, 2004
to shareholders of record on May 6, 2004. All share and per
share information presented in this Form 10-K has been retro-
actively restated to reflect the effect of this split.
69
Stock options and restricted stock units (RSUs) have been
issued to directors, officers and other management employees
under the Company’s Amended and Restated 1998 Stock
Option Plan. The stock options generally vest over a five-year
period and terminate ten years from the issuance date. Option
exercise prices equal the closing price on the NYSE of the com-
mon stock on the date of grant. RSUs provide for the issuance
of a share of the Company’s common stock at no cost to the
holder and vest over terms and are subject to performance cri-
teria determined by the Compensation Committee of the Board
of Directors. Prior to vesting, RSUs do not have dividend equiva-
lent rights, do not have voting rights and the shares underlying
the RSUs are not considered issued and outstanding. Shares
are issued on the date the RSUs vest.
The options and RSUs generally vest only if the employee
is employed by the Company on the vesting date or in other
limited circumstances, and unvested options and RSUs are for-
feited upon retirement before age 65 unless the Compensation
Committee of the Board of Directors determines otherwise. To
cover the exercise of vested options and RSUs, the Company
generally issues new shares from its authorized but unissued
share pool. At December 31, 2006, approximately 13 million
shares of the Company’s common stock were reserved for issu-
ance under this plan.
Effective January 1, 2006, the Company adopted Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-
Based Payment (“SFAS 123R”), which requires the Company to
measure the cost of employee services received in exchange for
all equity awards granted, including stock options and RSUs, based
on the fair market value of the award as of the grant date.
SFAS 123R supersedes Statement of Financial Accounting Stan-
dards No. 123, Accounting for Stock-Based Compensation and
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB 25”). The Company has adopted
SFAS 123R using the modified prospective application method of
adoption which requires the Company to record compensation
cost related to unvested stock awards as of December 31, 2005
by recognizing the unamortized grant date fair value of these
awards over the remaining service periods of those awards with no
change in historical reported earnings. Awards granted after
December 31, 2005 are valued at fair value in accordance with the
provisions of SFAS 123R and recognized as an expense on a
straight-line basis over the service periods of each award. The
Company estimated forfeiture rates for year ended December 31,
2006 based on its historical experience. Stock based compensa-
tion for the year ended December 31, 2006 of $67 million has
been recognized as a component of selling, general and adminis-
trative expenses in the accompanying Consolidated Financial
Statements as payroll costs of the employees are recorded in
selling, general and administrative expenses.
Prior to 2006, the Company accounted for stock-based
compensation in accordance with APB 25 using the intrinsic
value method, which did not require that compensation cost be
recognized for the Company’s stock options provided the option
exercise price was established at 100% of the common stock
fair market value on the date of grant. Under APB 25, the Com-
pany was required to record expense over the vesting period for
the value of RSUs granted. Compensation expense related
to RSU awards is calculated based on the market prices of
Company common stock on the date of the grant. Prior to
2006, the Company provided pro forma disclosure amounts in
accordance with SFAS No. 148, “Accounting for Stock-Based
Compensation—Transition and Disclosure” (SFAS No. 148), as
if the fair value method defined by SFAS No. 123 had been
applied to its stock-based compensation.
The estimated fair value of the options granted during 2006 and prior years was calculated using a Black-Scholes Merton option
pricing model (Black-Scholes). The following summarizes the assumptions used in the Black-Scholes models for the years ended
December 31, 2006, 2005 and 2004:
Risk-free interest rate
Weighted average volatility
Dividend yield
Expected years until exercise
Years Ended December 31,
2006
4.39–5.1%
22%
0.1%
7.5–9.5
2005
2004
4.3%
23%
0.1%
7.0
4.0%
25%
0.1%
7.0
The Black-Scholes model
incorporates assumptions to value
stock-based awards. The risk-free rate of interest for periods within
the contractual life of the option is based on a zero-coupon U.S.
government instrument over the expected term of the equity instru-
ment. Expected volatility is based on implied volatility from traded
options on the Company’s stock and historical volatility of the Com-
pany’s stock. The Company generally uses the midpoint between
the end of the vesting period and the contractual life of the grant
to estimate option exercise timing within the valuation model. This
methodology is not materially different from the Company’s histori-
cal data on exercise timing. Separate groups of employees that
have similar behavior with regard to holding options for longer peri-
ods and different forfeiture rates are considered separately for
valuation and attribution purposes.
70
As a result of adopting SFAS 123R, net earnings for the year ended December 31, 2006 was $39 million (net of $16 million
tax benefit) lower than if the Company had continued to account for stock-based compensation under APB 25. The impact on basic
and diluted earnings per share for the year ended December 31, 2006 was $0.12, respectively, per share. Pro forma net earnings
as if the fair value based method had been applied to all awards is as follows:
(In thousands, except for per share amounts)
Net earnings as reported
Add: Stock-based compensation programs recorded as expense,
net of tax
Deduct: Total stock-based employee compensation expense,
net of tax
Pro forma net earnings
Earnings per share:
Basic—as reported
Basic—pro forma
Diluted—as reported
Diluted—pro forma
Years Ended December 31,
2006
$1,122,029
2005
$ 897,800
2004
$746,000
46,854
4,876
5,267
(46,854)
(34,377)
(33,754)
$1,122,029
$868,299
$717,513
$
$
$
$
3.64
3.64
3.48
3.48
$
$
$
$
2.91
2.81
2.76
2.67
$
$
$
$
2.41
2.32
2.30
2.22
The following table summarizes the components of the Company’s stock-based compensation program recorded as expense
($in thousands):
Restricted Stock Units:
Pre-tax compensation expense
Tax benefit
Restricted stock expense, net of tax
Stock Options:
Pre-tax compensation expense
Tax benefit
Stock option expense, net of tax
Total Share-Based Compensation:
Pre-tax compensation expense
Tax benefit
Total share-based compensation expense, net of tax
Years Ended December 31,
2006
2005
2004
$ 12,561
(4,396)
$ 8,165
$ 54,630
(15,941)
$ 38,689
$ 67,191
(20,337)
$ 46,854
$ 7,502
(2,626)
$ 4,876
$
$
—
—
—
$ 7,502
(2,626)
$ 4,876
$ 8,103
(2,836)
$ 5,267
$
$
—
—
—
$ 8,103
(2,836)
$ 5,267
As of December 31, 2006, $55 million and $171 million of total unrecognized compensation cost related to restricted stock
units and stock options, respectively, is expected to be recognized over a weighted-average period of approximately 4 years for RSUs
and 2.5 years for stock options.
71
Option activity under the Company’s stock option plan as of December 31, 2006 and changes during the three years ended
December 31, 2006 were as follows (in 000’s; except exercise price and number of years):
Outstanding at January 1, 2004
Granted
Exercised
Cancelled
Outstanding at December 31, 2004
Granted
Exercised
Cancelled
Outstanding at December 31, 2005
Granted
Exercised
Cancelled
Outstanding at December 31, 2006
Vested and Expected to Vest at December 31, 2006
Exercisable at December 31, 2006
Shares
21,750
3,702
(1,487)
(456)
23,509
3,078
(1,601)
(1,594)
23,392
4,057
(2,676)
(814)
23,959
23,130
11,436
Weighted
Average
Share Price
$ 27.14
48.85
21.10
32.42
$30.80
56.66
23.55
39.00
$34.14
62.60
23.07
50.20
$39.65
$39.07
$28.69
Weighted
Average
Remaining
Contractual
Term
(in Years)
Aggregate
Intrinsic
Value
6
6
4
$ 785,752
$ 771,872
$500,311
Options outstanding at December 31, 2006 are summarized below:
Exercise Price
$10.41 to $13.58
$13.59 to $20.72
$20.73 to $30.64
$30.65 to $41.74
$41.75 to $57.14
$57.15 to $72.84
Outstanding
Exercisable
Shares
(thousands)
Average
Exercise Price
444
264
7,825
6,119
5,443
3,864
$11.92
16.59
24.76
35.67
52.38
62.91
Average
Remaining
Life
0.5
1.0
4.0
6.0
8.0
9.0
Shares
(thousands)
Average
Exercise Price
444
264
7,366
2,148
1,186
28
$11.92
16.59
24.40
35.00
52.06
63.15
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Com-
pany’s closing stock price on the last trading day of 2006 and the exercise price, multiplied by the number of in-the-money options)
that would have been received by the option holders had all option holders exercised their options on December 31, 2006. The
amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.
The aggregate intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $109.7
million, $35.2 million and $45.9 million, respectively. Exercise of options during the years ended December 31, 2006, 2005 and 2004
resulted in cash receipts of $59.5 million, $38.1 million and $31.4 million, respectively. The Company recognized a tax benefit of
approximately $35.6 million, $15.2 million, and $16.5 million in 2006, 2005 and 2004, respectively related to the exercise of
employee stock options, which has been recorded as an increase to additional paid-in capital.
72
The following table summarizes information on unvested restricted stock units outstanding as of December 31, 2006:
Unvested Restricted Stock Units
Unvested at January 1, 2004
Forfeited
Vested
Granted
Unvested at December 31, 2004
Forfeited
Vested
Granted
Unvested at December 31, 2005
Forfeited
Vested
Granted
Unvested at December 31, 2006
Number of
Shares
(in thousands)
777
—
—
284
1,061
(100)
—
130
1,091
(30)
—
536
1,597
Weighted-Average
Grant-Date
Fair Value
$ 47.24
52.60
48.74
52.60
63.14
49.94
56.70
62.13
$54.14
(15) Segment Data:
Beginning with this Annual Report on Form 10-K, the Company
realigned its segment reporting primarily due to significant
acquisitions in 2006. The Company previously reported under
three segments: Professional Instrumentation, Industrial Tech-
nologies and Tools & Components. The Company currently
reports under four segments: Professional
Instrumentation,
Medical Technologies, Industrial Technologies and Tools & Com-
ponents. The Industrial Technologies and Tools & Components
segments remain unchanged between the current year and
Instrumentation
prior year’s presentations. The Professional
segment has been realigned under Professional Instrumenta-
tion, comprising electronic test and environmental companies
and Medical Technologies, comprising the medical technologies
companies. All prior year information has been recast to reflect
this realignment.
Operating profit represents total revenues less operating
expenses, excluding other expense, interest and income taxes.
The identifiable assets by segment are those used in each seg-
ment’s operations. Inter-segment amounts are not significant
and are eliminated to arrive at consolidated totals.
Detailed segment data for the years ended December 31, 2006, 2005 and 2004 is presented in the following table
73
(in thousands):
Total Sales:
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Operating Profit:
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Other
Identifiable Assets:
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Other
Liabilities:
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Other
Depreciation and Amortization:
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Capital Expenditures, Gross
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
2006
2005
2004
$ 2,906,464
2,219,976
3,119,168
1,350,796
$ 9,596,404
$
625,577
261,604
485,520
194,063
(48,771)
$ 1,517,993
$ 2,691,045
5,534,139
3,702,937
824,408
111,622
$12,864,151
$
784,195
1,482,332
859,939
238,740
2,854,285
$ 6,219,491
$
$
$
48,830
84,284
62,656
21,420
217,190
34,478
31,609
46,001
25,618
$ 2,600,575
1,181,534
2,908,141
1,294,454
$ 7,984,704
$ 538,322
138,672
426,399
199,289
(38,014)
$1,264,668
$2,589,022
2,408,575
3,236,290
785,833
143,389
$9,163,109
$ 794,948
855,227
919,984
240,907
1,271,693
$ 4,082,759
$
47,816
44,229
62,171
22,756
$2,290,623
672,926
2,619,495
1,306,257
$6,889,301
$ 478,333
76,120
383,073
198,251
(30,644)
$1,105,133
$2,114,995
2,001,249
3,472,246
768,659
136,744
$8,493,893
$ 635,861
456,595
854,321
315,406
1,612,028
$ 3,874,211
$
41,151
25,239
60,576
29,162
$ 176,972
$ 156,128
$
32,337
16,143
49,320
23,406
$
29,139
17,078
51,104
18,585
$
137,706
$ 121,206
$ 115,906
74
Operations in Geographical Areas
Year Ended December 31
Total Sales:
United States
Germany
United Kingdom
All other
Long-lived assets:
United States
Germany
United Kingdom
All other
Sales Originating outside the US
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Sales by Major Product Group:
(in thousands)
Analytical and physical instrumentation
Medical & dental products
Motion and industrial automation controls
Mechanics and related hand tools
Product identification
Aerospace and defense
Power quality and reliability
All other
Total
2006
2005
2004
$5,222,517
1,460,199
368,987
2,544,701
$9,596,404
$5,514,341
1,494,135
604,522
1,856,251
$9,469,249
$ 1,542,370
1,465,328
1,483,821
182,997
$ 4,674,516
2006
$ 2,917,806
2,219,976
1,483,851
935,574
854,033
560,691
243,210
381,263
$9,596,404
$4,592,990
1,160,637
336,822
1,894,255
$ 7,984,704
$3,618,629
950,397
410,087
1,238,977
$6,218,090
$ 1,367,254
864,190
1,366,826
181,224
$ 3,779,494
2005
$ 2,607,963
1,181,534
1,372,940
892,778
826,031
502,859
226,471
374,128
$ 7,984,704
$4,461,389
773,163
250,627
1,404,122
$6,889,301
$3,509,695
545,021
256,315
1,264,172
$ 5,575,203
$1,201,391
524,580
1,153,626
182,876
$ 3,062,473
2004
$2,384,462
672,926
1,239,694
856,183
655,247
431,371
284,580
364,838
$6,889,301
(16) Quarterly Data—Unaudited (In Thousands, Except Per Share Data):
Net sales
Gross profit
Operating profit
Net earnings
Earnings per share:
Basic
Diluted
Net sales
Gross profit
Operating profit
Net earnings
Earnings per share:
Basic
Diluted
1st Quarter
$2,143,661
916,689
297,071
215,719
$
$
0.70
0.67
1st Quarter
$1,825,948
775,184
271,837
188,256
$
$
0.61
0.58
2006
2005
2nd Quarter
$ 2,349,764
1,032,111
381,282
314,522
$
$
1.02
0.98
2nd Quarter
$1,928,627
849,603
321,021
229,020
$
$
0.74
0.70
3rd Quarter
$2,442,723
1,101,777
392,324
268,071
$
$
0.87
0.83
3rd Quarter
$1,966,375
847,871
319,682
228,821
$
$
0.74
0.70
75
4th Quarter
$2,660,256
1,192,806
447,316
323,717
$
$
1.05
1.00
4th Quarter
$2,263,754
972,357
352,128
251,703
$
$
0.82
0.78
(17) New Accounting Pronouncements:
In November 2004, the FASB issued Statement of Financial
Accounting Standards (“SFAS”) No. 151, “Inventory Costs, an
amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends
Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, to
clarify that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be rec-
ognized as current-period charges. In addition, SFAS No. 151
requires that allocation of fixed production overhead to inven-
tory be based on the normal capacity of the production facilities.
SFAS No. 151 was effective in the Company’s first quarter of fis-
cal 2006. The adoption of SFAS No. 151 did not have a signifi-
cant impact on the Company’s results of its operations, financial
position or cash flows.
Effective January 1, 2006, the Company adopted State-
ment of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment (“SFAS 123R”), which requires
the Company to measure the cost of employee services
received in exchange for all equity awards. See Note 14 for fur-
ther discussion.
In July 2006, the FASB issued FASB Interpretation No. 48
(“FIN 48) “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109”, to clarify certain
aspects of accounting for uncertain tax positions,
including
issues related to the recognition and measurement of those tax
positions. This interpretation is effective for fiscal years begin-
ning after December 15, 2006. The Company adopted FIN 48
as of January 1, 2007, as required. While the Company is con-
tinuing to evaluate the impact of this Interpretation and guid-
ance on its application, the Company currently estimates the
adoption of FIN 48 will reduce the amount recorded by the
Company for uncertain tax positions by approximately $60 to
$80 million. This reduction will be recorded as an adjustment to
opening retained earnings, as of January 1, 2007.
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans—an amendment of FASB Statements No.
87, 88, 106 and 132(R).” SFAS No. 158 requires plan sponsors
of defined benefit pension and other post retirement benefit
plans (collectively, “postretirement benefit plans”) to recognize
the funded status of their postretirement benefit plans in the
statement of financial position, measure the fair value of plan
assets and benefit obligations as of the date of the fiscal year-
end statement of financial position, and provide additional dis-
closures. On December 31, 2006, the Company adopted the
recognition and disclosure provisions of SFAS No. 158. See
Notes 8 and Note 9 for further discussion of the effect of adopt-
ing SFAS No. 158 on the Company’s consolidated financial
statements.
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Our management, with the participation of our President and
Chief Executive Officer, and Executive Vice President and Chief
Financial Officer, has evaluated the effectiveness of our disclo-
sure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based on such evalu-
ation, our President and Chief Executive Officer, and Executive
Vice President and Chief Financial Officer, have concluded that,
as of the end of such period, our disclosure controls and proce-
dures were effective.
Management’s annual report on our internal control over
financial reporting and the independent registered public
accounting firm’s attestation report are included in our financial
statements for the year ended December 31, 2006 included in
Item 8 of this Annual Report on Form 10-K, under the headings
“Report of Management on Danaher Corporation’s Internal
Control Over Financial Reporting” and “Report of Independent
Registered Public Accounting Firm on Internal Control Over
Financial Reporting”, respectively, and are incorporated herein
by reference.
There have been no changes in our internal control
over financial reporting that occurred during our most recent
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None
77
Exhibit 31.1
I, H. Lawrence Culp, Jr., certify that:
1.
I have reviewed this report on Form 10-K of Danaher Corporation;
Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods pre-
sented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our con-
clusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the reg-
istrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial infor-
mation; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the reg-
istrant’s internal control over financial reporting.
Date: February 28, 2007
By: /s/ H. Lawrence Culp, Jr.
Name: H. Lawrence Culp, Jr.
Title: President and Chief Executive Officer
78
I, Daniel L. Comas, certify that:
1.
I have reviewed this report on Form 10-K of Danaher Corporation;
Certification
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods pre-
sented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our con-
clusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the reg-
istrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial infor-
mation; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the reg-
istrant’s internal control over financial reporting.
Date: February 28, 2007
By: /s/ Daniel L. Comas
Name: Daniel L. Comas
Title: Executive Vice President and Chief Financial Officer
79
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, H. Lawrence Culp, Jr., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that to my knowledge, Danaher Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained
in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of
Danaher Corporation.
Date: February 28, 2007
By: /s/ H. Lawrence Culp, Jr.
Name: H. Lawrence Culp, Jr.
Title: President and Chief Executive Officer
This certification accompanies the Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
shall not be deemed filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This
certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except
to the extent that Danaher Corporation specifically incorporates it by reference.
80
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes Oxley Act of 2002
Exhibit 32.2
I, Daniel L. Comas, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge, Danaher Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained
in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of
Danaher Corporation.
Date: February 28, 2007
By: /s/ Daniel L. Comas
Name: Daniel L. Comas
Title: Executive Vice President and Chief Financial Officer
This certification accompanies the Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
shall not be deemed filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This
certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except
to the extent that Danaher Corporation specifically incorporates it by reference.
The following graph compares the yearly percentage change
in the cumulative total shareholder return in Danaher
common stock during the five years ended December 31,
2006 with the cumulative total return on the S&P 500 Index
(the equity index) and the S&P 500 Industrial Index (the peer
index). The comparison assumes $1.00 was invested on
December 31, 2002 in Danaher common stock and in both
of the above indices with reinvestment of dividends. This
graph is not deemed to be “soliciting material” or to be “filed”
with the SEC or subject to the SEC’s proxy rules or to the
liabilities of Section 18 of the Securities Exchange Act of the
1934, except to the extent that Danaher specifically requests
that such information be treated as soliciting material or
specifically incorporates it by reference into a filing under the
Securities Act or the Securities Exchange Act.
Comparison of Five-Year Cumulative Total Return
Among Danaher Corporation, S&P 500 Index and S&P 500 Industrial Index
s
r
a
l
l
o
D
3
2.5
2
1.5
1
0.5
0
12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
DHR
S&P 500
S&P 500 Industrial Index
Danaher
Corporation
S&P 500
S&P 500
Industrial Index
(Equity Index)
(Peer Index)
12/31/01
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
1.00
1.09
1.52
1.90
1.85
2.40
1.00
0.77
0.97
1.06
1.09
1.24
1.00
0.72
0.94
1.09
1.09
1.21
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THIS PAGE INTENTIONALLY LEFT BLANK
Directors
Mortimer M. Caplin
Founder and Member
Caplin & Drysdale
H. Lawrence Culp, Jr.
President and Chief
Executive Offi cer
Danaher Corporation
Donald J. Ehrlich
Chief Executive Offi cer
Schwab Corporation
Linda P. Hefner
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
John T. Schwieters
Vice Chairman
Perseus, LLC
Alan G. Spoon
Managing General Partner
Polaris Venture Partners
A. Emmet Stephenson, Jr.
General Partner
Stephenson Ventures
Executive Offi cers
Steven M. Rales
Chairman of the Board
Mitchell P. Rales
Chairman of the
Executive Committee
H. Lawrence Culp, Jr.
President and Chief
Executive Offi cer
Philip W. Knisely
Executive Vice President
Steven E. Simms
Executive Vice President
James H. Ditkoff
Senior Vice President –
Finance & Tax
Jonathan P. Graham
Senior Vice President –
General Counsel
Robert S. Lutz
Vice President –
Chief Accounting Offi cer
Daniel A. Raskas
Vice President –
Corporate Development
Corporate Offi cers
Steven L. Breitzka
Vice President and
Group Executive
William K. Daniel II
Vice President and
Group Executive
Daniel E. Even
Vice President and
Group Executive
Martin Gafi nowitz
Vice President and
Group Executive
Alexander Granderath
Vice President and
Group Executive
Alex A. Joseph
Vice President and
Group Executive
Craig B. Purse
Vice President and
Group Executive
Jeffrey A. Svoboda
Vice President and
Group Executive
Daniel L. Comas
Executive Vice President, Chief
Financial Offi cer
J. David Bergmann
Vice President – Audit
Thomas P. Joyce, Jr.
Executive Vice President
James A. Lico
Executive Vice President
Brian E. Burnett
Vice President – Danaher
Business System Offi ce and
Corporate Procurement
William H. King
Vice President –
Strategic Development
Frank T. McFaden
Vice President – Treasurer
James F. O’Reilly
Associate General
Counsel and Secretary
Henk van Duijnhoven
Vice President –
Human Resources
Philip B. Whitehead
Vice President –
Managing Director
F. Anders Wilson
Vice President –
Investor Relations
Frances B. L. Zee
Vice President – Regulatory
Affairs / Quality Assurance
Major Operating
Company Presidents
Accu-Sort
Greggory W. Branning
Danaher Motion
OEM Systems
Hans Dreijer
Danaher Sensors
and Controls
Steven L. Breitzka
Danaher Tool Group
Consumer Tools
John P. Constantine
Danaher Tool Group
Professional Tool Division
John W. Allenbach
Fluke
Barbara B. Hulit
Fluke Networks
Paul J. Caragher
Gilbarco Veeder-Root
Martin Gafi nowitz
Hach/Lange Europe
Anne De Greef-Safft
Hach/Lange North America
Jonathan O. Clark
Hach Ultra Analytics
Yves Docommun
Hennessy Industries, Inc.
Vincent E. Piacenti
Jacobs Vehicle Systems
Robert M. Tykal
KaVo
Alexander Granderath
Kerr
Edward R. Shellard
Kollmorgen Electro-Optical
Michael J. Wall
Kollmorgen Motors
and Drives
Kevin E. Layne
Leica Microsystems
Wolf-Otto Reuter
Matco Tools Corporation
Thomas N. Willis
Ormco
Donald L. Tuttle
Pacifi c Scientifi c Energetic
Materials Company
H. Kenyon Bixby
Pacifi c Scientifi c
Safety & Aviation Group
Gregory H. Beason
Radiometer
Peter Kürstein
Thomson
Michael L. Douglas
Trojan Technologies
Marvin R. DeVries
Veeder-Root
Scott W. Wine
Videojet Technologies
Craig B. Purse
At Danaher we build good businesses — businesses
focused on delivering innovative products and solutions
to our customers.
Over the last ten years, Danaher revenues have grown
over four-fold, a result of consistent organic growth cou-
pled with a disciplined acquisition strategy. This success
is also refl ected in Danaher’s share price performance
generating a ten year compounded annual growth rate
of over 20% per year.
Financial Operating Highlights
(dollars in thousands except per share data and number of associates)
Sales
Operating profi t
Net earnings
Earnings per share (diluted)
Operating cash fl ow
Capital expenditures
Free cash fl ow (operating cash fl ow less capital expenditures)
Number of associates
Total assets
Total debt
Stockholders’ equity
Total capitalization (total debt plus stockholders’ equity)
2006
2005
$ 9,596,404
$ 1,517,993
$ 1,122,029
$
3.48
$ 1,547,251
$
137,706
$ 1,409,545
45,000
$ 12,864,151
$ 2,433,716
$ 6,644,660
$ 9,078,376
$ 7,984,704
$ 1,264,668
897,800
$
$
2.76
$ 1,203,801
$
121,206
$ 1,082,595
40,000
$ 9,163,109
$ 1,041,722
$ 5,080,350
$ 6,122,072
Shareholder Information / www.danaher.com
Our transfer agent can help you
with a variety of shareholder related
services including:
— Change of address
— Lost stock certifi cates
— Transfer of stock to another person
— Additional administrative services
Contacting our Transfer Agent
Computershare
PO Box 43078
Providence, RI 02940-3078
Toll Free: 800-568-3476
Outside the US: 312-588-4991
Investor Relations
This annual report along with a variety of
other fi nancial materials can be viewed at
www.danaher.com.
Additional inquiries may be directed to
Investor Relations at:
Danaher Corporation
2099 Pennsylvania Avenue NW, 12th Floor
Washington, DC 20006
Phone: 202.828.0850
Fax: 202.828.0860
Email: ir@danaher.com
Annual Meeting
Danaher’s annual shareholder meeting will
be held on May 15, 2007 in Washington, D.C.
Shareholders who would like to attend the
meeting should register with Investor Rela-
tions by calling 202.828.0850 or via
e-mail at ir@danaher.com.
Auditors
Ernst & Young LLP, Baltimore, Maryland
Stock Listing
Symbol: DHR
New York Stock Exchange
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Washington, DC 20006
T: 202.828.0850
www.danaher.com
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