2007 Annual Report
Imagine
Innovate
Execute
Evolve
Evolve:
To change to a higher and better state.
At Danaher, we are constantly evolving in our quest to build high-performing businesses over time. From the
composition of our portfolio and the global markets we serve to the operating system that drives all aspects
of our business, we are constantly searching for ways to improve. Deeply rooted in kaizen, the Japanese
word for continuous improvement, our unrelenting focus on forward progress drives us to deliver the most
innovative products and solutions to our customers and value to our shareholders.
Throughout this report, we have used the art of origami to symbolize Danaher’s continuous business
evolution. The myriad improvements, both large and small, that we make at Danaher on a daily basis are
like the countless folds that transform a single sheet of paper into a cohesive and intricate work of art.
Dear Fellow Shareholder:
Danaher had another terrific year in 2007. Revenues from continuing operations
increased 16.5% and adjusted earnings per share from continuing operations grew
19%. We strengthened our portfolio organically and expanded our key strategic
platforms with 12 acquisitions that in the aggregate added over
$1.5 billion of new revenue for Danaher. The Danaher team performed well
in 2007, and I am proud of and thankful for their efforts.
2007 Milestones
Of particular importance, Danaher achieved three major milestones in 2007:
• Revenues exceeded $10 billion
• More than 50% of revenues are now generated outside of the United States
• Free cash flow exceeded $1.5 billion
As a result of these achievements, we entered 2008 not only larger but stronger and more global than ever. The
evolution of Danaher continues and this report highlights various aspects of that evolution which we believe bode
well for our future performance. Evolution, like kaizen, is by nature continuous. Danaher has come a long way since
I first joined the company, but our evolution is far from finished.
DBS Evolution
As a result of our early study of the Toyota Production System, the Danaher Business System (DBS) has evolved from
its roots on the manufacturing floor to a comprehensive approach, driving customer satisfaction and growth through
1
Financial Operating Highlights
(dollars in thousands except per share data and number of associates)
2007
2006
Sales*
Operating profit*
Net earnings*
Earnings per share (diluted)*
Operating cash flow*
Capital expenditures*
Free cash flow (operating cash flow less capital expenditures)*
Number of associates
Total assets
Total debt
Stockholders’ equity
Total capitalization (total debt plus stockholders’ equity)
*From continuing operations
$
$
$
$
$
$
$
$
$
$
$
11,025,917
1,740,709
1,213,998
3.72
1,699,308
162,071
1,537,237
50,000
17,471,935
3,726,244
9,085,688
12,811,932
$
$
$
$
$
$
$
$
$
$
$
9,466,056
1,500,210
1,109,206
3.44
1,530,729
136,411
1,394,318
45,000
12,864,151
2,433,716
6,644,660
9,078,376
DBS is Everywhere
DBS is everywhere today and
will continue to evolve to stay
relevant and impact the daily
work of everyone at Danaher.
Danaher Ten-Year Shareholder Return: 1997–2007
DHR (464% Growth)
S&P 500 (78% Growth)
DHR
S&P 500
2
600.00%
500.00%
400.00%
300.00%
200.00%
100.00%
0.00%
500%
400%
300%
200%
100%
0%
-100%
7
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innovation and continuous improvement in all aspects of the business. Representing a truly global process today, DBS is
utilized by every operating location, function and level at Danaher to shape strategy, focus execution and create value for
customers and shareholders alike.
We have put tremendous energy and investment into our Ideas to Execution (I2E) initiative, aimed at strengthening the
processes by which we conceive, develop and deliver new products to our customers. Essentially, I2E is DBS for our
engineers, scientists, marketers and salespeople. We have borrowed heavily from the lean principles of DBS and imported
them into these functions. Plus, we have internally and externally benchmarked best practices for research, development,
sales and marketing that we can share across Danaher.
Our recent launch of AQT90 Flex, Radiometer’s entry platform into the cardiac marker market, is proof I2E works. We used
our cost-oriented DBS tools to free up funding for this ambitious undertaking, the largest R&D project in Radiometer’s
history. We then used the I2E tools to collect customer inputs, develop and test a winning product design and deliver it in
record time. We began shipping AQT90 Flex earlier this year and now can look to tap this new $1 billion industry segment
for incremental growth.
The well-above market growth rates at Hach-Lange, our water quality analytics business, are further evidence of how we
are successfully expanding DBS. Hach-Lange utilized I2E to systematically improve the effectiveness and efficiency of our
sales teams and then, with those improvements in-hand, smartly expanded our field sales capacity to drive double-digit
compounded annual revenue growth over the past five years.
3
DBS is everywhere and will continue to evolve to stay relevant and impact the daily work of everyone at Danaher.
Portfolio Evolution
Our portfolio certainly evolved in 2007 with 12 important additions. We continue to believe that investing our free cash
flow in leadership businesses with strong prospects for revenue and profit growth creates long-term value for shareholders.
Tektronix, a global leader in Test & Measurement (T&M), brought another outstanding global brand to Danaher and doubled
the size of one of our strongest strategic platforms. In partnership with Fluke and Fluke Networks, Tektronix is expected to
build on its legacy of developing outstanding products for the R&D engineer to accelerate growth in its served markets.
We are off to an excellent start with the Tektronix team and are bullish about our future together in T&M.
Five-Year Compounded Annual Growth
Five-Year Compounded Annual Growth
$11,026
$1,741
$9,466
$1,500
$3.72
$3.44
$1,699
$87.74
$1,531
4
$7,871
$6,777
$1,248
$2.72
$1,090
$2.27
$5,184
$835
$1.67
$1,189
$1,019
$844
$72.44
$55.78
$57.41
$45.88
03 04 05 06 07
03 04 05 06 07
03 04 05 06 07
03 04 05 06 07
03 04 05 06 07
Sales*
Operating Income*
EPS*
Operating Cash Flow*
Year End Share Price
Five-Year
Compounded
Annual Growth
Rate 20%
Five-Year
Compounded
Annual Growth
Rate 20%
Five-Year
Compounded
Annual Growth
Rate 22%
(in millions)
(in millions)
*From Continuing Operations
Five-Year
Compounded
Annual Growth
Rate 20%
(in millions)
Five-Year
Compounded
Annual Growth
Rate 22%
The addition of Vision Systems was another key move as we continue to build a strong position in Life Sciences.
We combined Vision with a division of Leica Microsystems to create Leica Biosystems, a leading supplier of
workflow solutions for clinical histopathology laboratories and a business with strong growth prospects and a
balanced instrument and consumable revenue mix. Our customers here are on the front lines of cancer diagnostics
and treatment, utilizing our highly reliable, quick turnaround products to enhance patient care and clinical outcomes.
Global Evolution
Our geographic footprint evolved last year, as our organic expansion in the faster growing economies of Asia,
Eastern Europe, Latin and South America and the Middle East accelerated. In 2007, Danaher’s core revenues grew
at a double-digit rate in these emerging markets, which now represent approximately 15% of Danaher’s sales.
And with the addition of Tektronix, more than 50% of Danaher’s revenues come from markets outside of the U.S.
China alone is a $1 billion business for us — larger than the Danaher I joined in 1990. We have shared with you
before our vision of becoming a premier global enterprise. We are clearly making progress, yet still see plenty of
opportunity for further expansion and growth ahead.
Final Thoughts
Danaher evolves almost daily, but certain things stay the same. Our five core values are steadfast. Our focus on
performance, especially free cash flow, is another constant. Our free cash flow has compounded at 20% annually
over the last five years and for 16 years in a row has exceeded our net income.
Consumer and credit market turmoil suggests uncertainty ahead in the U.S. while our international markets remain
stable. We aim to outperform in 2008 regardless of the economic environment in which we operate. The evolution
of Danaher — in DBS, our portfolio and our geographic footprint — positions us well for the future. We expect that
evolution will continue as we grow and strengthen your company.
Thank you for your confidence and support.
5
H. Lawrence Culp, Jr.
President and Chief Executive Officer
March 24, 2008
DBS Evolution
The Danaher Business System is a system of values and continuous improvement processes that apply to all parts of our
organization. The voice of the customer is the starting point for establishing priorities for the business, and DBS is used
to guide everyday activities to exceed customer expectations. These expectations are defined by quality levels, delivery
performance, improvements in cost and by our ability to provide innovative products and services.
DBS began in our Jacobs Vehicle Systems business in the late 1980’s. It was there that Danaher became one of the first
North American companies to utilize the principles of kaizen, the Japanese word for continuous improvement. At that time,
DBS was primarily focused on improving operations and eliminating waste on the manufacturing floor. DBS has evolved to
encompass our Ideas to Execution processes (I2E), which drive our activities across the company in areas such as research
and development, sales and marketing.
6
DBS has continued to evolve as our portfolio and geographic footprint expand. From a solid foundation on the shop floor and
now touching every facet of our business and every one of our associates around the world, DBS is who we are and how we
do what we do. DBS is the culture of Danaher and continues to evolve.
Hach-Lange Core Revenue Growth vs. Industry Average
Hach-Lange
Industry Average
03
04
05
06
07
12%
10%
8%
6%
4%
2%
0%
An integral part of the evolution of DBS has been the development and deployment of processes designed to accelerate
growth. Our Hach-Lange water quality team has a history of delivering revenue growth at twice the rate of the overall
industry. The Hach-Lange team utilized I2E tools to drive significant efficiencies throughout the selling process through
the use of continuous hiring models, attractive reward and recognition systems and focused training for each of its sales
associates. I2E has also helped accelerate the team’s successful expansion around the globe, allowing the company to take
advantage of significant emerging market opportunities.
DBS has also evolved to include tools used in engineering and R&D activities. Accelerated Product Development (APD)
is a DBS tool designed to aid in the development of new products from concept to successful market commercialization.
Radiometer used APD in the development of its new AQT90 Flex, a new platform for acute care cardiac marker testing,
which significantly expands Radiometer’s served market. Using a cross-functional project team, including marketing, R&D
7
and production, Radiometer significantly reduced development time for AQT90 Flex by 40%. A combination of customer
visits, focus groups, surveys, advisory teams and associate involvement helped Radiometer ensure that AQT90 Flex met
the “voice of the customer.”
AQT90 Flex
Portfolio Evolution
Over the past five years at Danaher, we have focused on expanding and strengthening our business portfolio. In 2002,
Danaher generated total sales of $4.5 billion, and our portfolio included five strategic platforms: Environmental,
Test & Measurement, Product ID, Motion and Mechanics’ Hand Tools. Today, as a result of solid organic growth and
a number of successful acquisitions, we have significantly strengthened our portfolio, more than doubled revenues to
$11 billion and added a sixth strategic platform, Medical Technologies, comprised of businesses with leading positions
in dental technologies, life sciences and acute care diagnostics. These six platforms now account for more than 85%
of Danaher’s total revenues.
One benefit of Danaher’s portfolio evolution is evidenced by the improvements in our gross margins. We have expanded
our gross margins from approximately 39% in 2002 to more than 47% in 2007. Furthermore, in 2007, more than 60%
8
of Danaher’s revenues were derived from businesses with gross margins in excess of 50%, as compared to less than
one-quarter of revenues five years ago.
We also believe Danaher is a less volatile and less cyclical company today than it was five years ago. About 35%, or
$4 billion, of Danaher’s 2007 revenues were derived from businesses serving lower volatility end markets, including
water quality, dental technologies, life sciences and acute care diagnostics. In 2002, approximately 10% of our revenues
were derived from these end markets. Also, our portfolio evolution has resulted in a significant increase in higher margin
consumable and after-market revenues. As a result, approximately 50% of Danaher’s total revenues in 2007 are represented
by consumables, after-market sales and revenues from businesses serving less volatile, less cyclical end markets.
Total Portfolio Revenues
2002
Process / Environmental Controls
Medical Technologies
Professional Instrumentation
2007
Environmental
Test &
Measurement
Mechanics’
Hand Tools
Product ID
Motion
Environmental
Test &
Measurement
Medical
Technologies
Mechanics’
Hand Tools
Focused Niche
Businesses
Tools & Components
Tools & Components
Focused Niche
Businesses
Product
ID
Motion
Industrial Technologies
Lower Volatility and After-Market Revenues
2002
2003
2007
2007
9
After-Market
Revenue from
Other Businesses
$700M
Water Quality
$500M
After-Market
Revenue from
Other Businesses
$1.4B
Dental Technologies
$1.7B
Water Quality
$1.1B
Life Sciences
$900M
Acute
Care
Diagnostics
$400M
Geographic Evolution
During the past five years, Danaher significantly expanded its global presence. We have grown from a U.S.-centric
corporation into a global enterprise with more than half of revenues derived outside the U.S. The benefits of this
geographic diversity are numerous. First, it affords stability to our operations, by providing diverse revenue streams
to help offset economic trends in individual countries. Second, geographic diversity offers the opportunity to access
new markets for our products and services.
Furthermore, future growth is dependent in part on our ability to develop products and sales models that target developing
economies. In 2007, Danaher’s core revenues grew at a double-digit rate in the emerging markets, which now represent
approximately 15% of Danaher’s sales. This number is expected to continue to grow over time.
Today, Danaher operates more than 200 manufacturing facilities in more than 20 countries around the world, with
approximately half located outside of the U.S. In addition, Danaher has sales presence in more than 125 countries
around the world.
Danaher’s geographic diversity allows us to draw on the skills of a global workforce, and, where appropriate, capitalize
on the economic production benefits attributable to low cost manufacturing regions. Over the past five years, we have
10
significantly expanded our global workforce, which today includes 50,000 associates, over half of whom are domiciled
outside the U.S.
Increasing Global Revenue
Emerging Markets’ Footprint
Non-U.S. Revenue as
% of Total Revenue
48%
49%
45%
39%
China*
1,000
51%
Rest of Asia**
475
Eastern Europe
Middle East/Africa
200
175
Brazil
120
Mexico
110
India
80
03
04
05
06
07
Revenue 2007, $ Millions
*Includes in-country and export sales
**Excludes Japan
11
Global Associates
U.S. Associates
Non-U.S. Associates
13,000
18,000
22,000
24,000
26,000
17,000
17,000
18,000
21,000
24,000
03
04
05
06
07
Professional Instrumentation
Environmental
Hach-Lange and Hach Ultra Analytics provide advanced water quality analytical systems
and solutions for laboratory, industrial and field applications. Trojan UV is a world leader in
ultraviolet water disinfection systems. ChemTreat is a leading provider of industrial water
treatment solutions.
Target Customers: Municipal Drinking Water and Waste Water Facilities, Industrial Plants,
Environmental Monitoring and Regulatory Agencies
Gilbarco Veeder-Root is a leading global provider of solutions and technologies that combine
convenience, control and environmental integrity for retail petroleum fueling markets.
Target Customers: Major Oil Companies, Convenience Stores, Retail Fueling Franchises,
Commercial Fueling, Major Retailers and Supermarkets
12
HQ 40D with IntelliCAL Probes
Environmental Business Highlights
2007 core growth for the Environmental
platform was 6%, driven by solid demand at
Hach-Lange and Trojan UV, and strength in all
major geographies. Our acquisition of
ChemTreat in July 2007 complements our
current water quality offerings and
represents a natural adjacency to our
current water treatment business.
Gilbarco Veeder-Root core revenues grew
at a low-single digit rate in 2007. During
the year, the business introduced exciting,
new point-of-sale products and a content
management system with the ability to
conduct local Google® searches, view
maps and print driving directions at
our premier fuel dispenser pumps.
Test & Measurement
Fluke Corporation is a world leader in the manufacturing, 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.
Target Customers: Technicians, Commercial and Residential Electricians,
Engineers, Metrologists
Fluke Networks provides innovative solutions for the testing, monitoring and
analysis of enterprise and telecommunication networks.
Target Customers: CIOs, CTOs, Engineers, Technicians and Managers for Networks
and Telecommunications
Tektronix, acquired in November 2007, is a global leader in test, measurement and
monitoring products. The company’s products and technologies populate the design centers,
laboratories and communications networks of global leaders engaged in pushing the
envelope of information technology and communications.
Target Customers: Engineers and Technicians for the Research & Development,
Communications, Computer and Semiconductor Industries
Test & Measurement Business Highlights
Test & Measurement delivered core revenue growth of 8% in 2007. The acquisition of
Tektronix in November 2007 doubled the size of the Test & Measurement platform to
over $2 billion. To date, collaborative efforts between Fluke and Tektronix have begun
to identify a number of significant opportunities in both product development and
market penetration for the two businesses.
Ti10 Thermal Imager
13
Medical Technologies
Danaher is a global leader in dental technologies and consumables. KaVo is a
leading manufacturer of digital dental imaging products, precision dental hand
pieces, treatment units and diagnostic systems. Sybron Dental Specialties is a
leading manufacturer of dental consumables and small equipment serving the
professional dental market globally. Notable dental brands include Gendex;
Dexis; Pelton & Crane; Ormco; Kerr and Imaging Sciences International.
Target Customers: Dental Professionals
Radiometer is a leading provider of diagnostic equipment focused on critical care
applications for the measurement of blood gases in hospitals’ central labs and
point-of-care locations.
Target Customers: Physicians, Hospitals, Point-of-Care Centers
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. Leica Biosystems is a
leading supplier of workflow solutions for clinical histopathology laboratories.
Target Customers: Research Institutions, Pathology Labs, Physicians and Technicians
Medical Technologies
Business Highlights
2007 core revenues for the platform grew 8%, led
by strength from Leica Microsystems, which grew
at a mid-teens rate for the year driven by robust
microscopy demand. Dental core revenues increased
at a mid-single digit rate, with sales in dental
consumables and imaging equipment, as well as our
minimally invasive product offerings, contributing to
this performance. Radiometer’s core sales increased
at a high-single digit rate for the year, a result of
strong instrument placements globally.
14
i-CAT 3D Dental Scanner
DataFlex Plus Thermal
Transfer Overprinter
Industrial Technologies
Product Identification
Danaher’s printing and marking technologies manufactured by Videojet,
apply codes to more than one trillion products worldwide each year.
Danaher’s scanning and tracking products currently sort more than half
of all packages shipped in the United States.
Target Customers: Food and Beverage, Pharmaceutical, Retail Distribution,
Product Identification
Business Highlights
Product Identification 2007 revenues
increased 3.5%, while 2007 core
revenues declined 1%, due primarily
to 2006 U.S. Postal Service business
that did not recur in 2007.
Mail and Parcel Services
Motion
Danaher Motion provides innovative solutions combining flexibility,
precision, efficiency and reliability for applications as diverse as robotics,
wheelchairs, lift trucks, electric vehicles and packaging machines.
Target Customers: Factory Automation, Medical, Factory and Personal Mobility,
Aerospace and Defense
Focused Niche Businesses: Aerospace and Defense, Sensors and Controls
Motion Business Highlights
Motion is pursuing a number of growth
opportunities in the Clean Energy market,
with our custom design capabilities for high
power motors and drives proving to be very
attractive for hybrid applications in both
the aerospace and defense market, as well
as heavy-duty and specialty vehicles. In
2007, Motion’s performance continued to be
adversely impacted by softness in its tech
end-markets, resulting in core revenues
declining 1% during the year.
15
Tools & Components
Mechanics’ Hand Tools
Danaher Tool Group and Matco enjoy a leading share position in the
U.S. mechanics’ hand tool segment. Danaher is committed to delivering
customer-driven innovation with new products that improve strength,
speed and access. Notable brands include Sears Craftsman®; Armstrong;
Matco; Allen; KD-Tools; Holo-Krome; NAPA®; SATA and Lowes®.
Target Customers: Professional, Industrial and Consumer End Users
Focused Niche Businesses: Delta Consolidated Industries, Hennessy
Industries, Jacobs Chuck Manufacturing Company, Jacobs Vehicle Systems
Mechanics’ Hand Tools
Business Highlights
For the full year, revenues for Tools and
Components decreased 1%, primarily
due to decreased consumer spending
for our Mechanics’ Hand Tools, as well
as to regulatory changes affecting our
Jacobs Vehicle Systems business. Open
Innovation helped in the launch of
more than 300 new products in
Mechanics’ Hand Tools in 2007.
2007 Form 10-K
Securities And Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ]
OR
[ ]
Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the fiscal year ended December 31, 2007
Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the transition period from __________ to___________
Commission File Number: 1-8089
Danaher Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
59-1995548
(I.R.S.Employer Identification number)
2099 Pennsylvania Ave. N.W., 12th Floor, Washington, D.C.
(Address of Principal Executive Offices)
20006-1813
(Zip Code)
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
Name of Each Exchange On Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
1
None
(Title of Class)
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 reference 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, a non-accelerated filer or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer X
Accelerated filer ____
Non-accelerated filer ____ Smaller reporting company ____
(Do not check if a smaller reporting company)
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 15, 2008, the number of shares of Registrant’s common stock outstanding was 318.3 million. The aggregate market value of common shares
held by non-affiliates of the Registrant on June 29, 2007 was $18.1 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.
2
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
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
15
21
21
21
21
22
24
25
26
56
57
100
100
100
Information Relating To
Forward-Looking Statements
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
communications and discussions through webcasts, phone
calls, conference 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 statements of historical fact are statements that could
be deemed forward-looking statements, including statements
regarding: projections of revenue, margins, expenses, tax provi-
sions (or reversals of tax provisions), earnings or losses from
operations, cash flows, pension and benefit obligations and
funding requirements, synergies or other financial items; plans,
strategies and objectives of management for future operations,
including statements relating to our stock repurchase program,
potential acquisitions, executive compensation and purchase
commitments; developments, performance or industry or mar-
ket rankings relating to products or services; future economic
conditions or performance; the outcome of outstanding claims
or legal proceedings; assumptions underlying any of the forego-
ing; and any other statements that address activities, events
or developments that Danaher Corporation (“Danaher,” “we,”
“us,” “our”) intends, expects, projects, believes or anticipates
will or may occur in the future. Forward-looking statements
may be characterized by terminology such as “believe,” “antici-
pate,” “should,” “would,” “intend,” “plan,” “will,” “expects,”
“estimates,” “projects,” “positioned,” “strategy,” and similar
expressions. These statements are based on assumptions and
assessments made by our management in light of their expe-
rience and perception of historical trends, current conditions,
expected future developments and other factors 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 Fac-
tors” in this Annual Report.
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, webcast or oral discussion in which they are made.
We do not assume any obligation and do not intend to update any
forward-looking statement except as required by law.
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
four segments: Professional
Instrumentation, Medical Technologies, Industrial Technologies,
and Tools & Components.
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 compared to our peer
companies; and
• upper quartile cash flow generation from operations
compared to our 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. Within the
DBS framework, we also pursue a number of ongoing strategic
initiatives intended to improve our operational performance,
including global sourcing of materials and services and
innovative product development. We also acquire businesses
that we believe can help us achieve the objectives described
above, and believe that many acquisition opportunities remain
available within our target markets. 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. We also continually assess the strategic
fit of our existing businesses and may divest businesses that are
not deemed to strategically fit with our ongoing operations or
are not achieving the desired return on investment.
Danaher Corporation, originally DMG, Inc., was organized in 1969
as a Massachusetts real estate investment trust. In 1978 it was
3
reorganized as a Florida corporation under the name Diversified
Mortgage Investors, Inc. (“DMI”) which in a second reorganization
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 following the
1986 annual meeting of our shareholders.
Operating Segments
The table below describes the percentage of our total annual
revenues attributable to each of our four segments over each
of the last three fiscal years:
For the Year Ended December 31
Segment
2007
2006
2005
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
32%
27%
29%
12%
31%
23%
32%
14%
33%
15%
36%
16%
Sales in 2007 by geographic destination were: North America,
49%; Europe, 31%; Asia, 13%; and other regions, 7%. For
additional information regarding our segments and sales
by geography, please refer to Note 16 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
services for use in the performance of their work. Professional
Instrumentation encompasses two strategic lines of business:
environmental and test and measurement. Sales for this segment
in 2007 by geographic destination were: North America, 45%;
Europe, 31%; Asia, 15%; and other regions, 9%.
Environmental. 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, Trojan Technologies Inc. in 2004 and ChemTreat, Inc. in 2007.
Today, we are a worldwide leader in the water quality sector. Our
water quality operations design, manufacture and market:
• a wide range of analytical instruments, related consumables,
and associated services that detect and measure chemical,
physical, and microbiological parameters in drinking water,
wastewater, groundwater, and ultrapure water;
• ultraviolet disinfection systems; and
• industrial water treatment solutions, including chemical
intended
treatment solutions and analytical services
to address corrosion, scaling and biological growth
problems in boiler, cooling water and industrial waste
water applications. We entered this market through our
acquisition of ChemTreat in July 2007.
Typical users of our analytical instruments, related consumables
and associated services, and our ultraviolet disinfection
systems, include municipal drinking water and wastewater
treatment plants, industrial process water and wastewater
treatment facilities, and third-party testing laboratories. Typical
users of our industrial water treatment solutions include
industrial plants in a wide range of industries. Customers in
these industries 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 and the other factors described under
“-Competition.” Our water quality business provides products
under a variety of well-known brands, including HACH, HACH/
LANGE, HACH ULTRA ANALYTICS, TROJAN TECHNOLOGIES
and CHEMTREAT. Manufacturing facilities are located in North
America, Europe, and Asia. Sales are generally made through
independent representatives,
our direct sales personnel,
independent distributors and e-commerce.
We have participated in the retail/commercial petroleum market
since the mid-1980s through our Veeder-Root business, and have
enhanced our geographic coverage and product and service
breadth through various acquisitions including Red Jacket in
2001 and Gilbarco in 2002. Today, we are a leading worldwide
provider of products and services for the retail/commercial
petroleum market. Through the Gilbarco Veeder-Root business,
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
services, including compliance services, fuel system
maintenance, and inventory planning and supply
chain support.
Typical users of these products include independent and
company-owned retail petroleum stations, high-volume
retailers, convenience stores, and commercial vehicle fleets.
Customers in this industry choose suppliers based on a
number of factors including product features, performance
and functionality, the supplier’s geographical coverage and
the other factors described under “—Competition.” We
market our retail/commercial petroleum products under
a variety of brands, including GILBARCO, VEEDER-ROOT,
and RED JACKET. Manufacturing facilities are located in
North America, Europe, Asia and South America. Sales are
generally made through independent distributors and our
direct sales personnel.
Test and Measurement. Our test and measurement business was
created in 1998 through the acquisition of Fluke Corporation,
and has since been supplemented by the acquisitions of a
number of additional test and measurement businesses. We
doubled the size of the test and measurement business with
the acquisition of Tektronix, Inc. in November 2007. Our test and
measurement business consists of four primary businesses.
The Fluke 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.
Products in this business are marketed under a variety of brands,
including FLUKE, RAYTEK, and FLUKE BIOMEDICAL. Sales in
the Fluke business are generally made through independent
distributors as well as direct sales personnel.
The Fluke Networks business provides 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 networks. In 2006, Fluke Networks
expanded its offerings in the area of network monitoring and
application performance management solutions through the
acquisition of Visual Networks, Inc. Typical users of these
products include computer network engineers and technicians.
Products in this business are primarily marketed under the
FLUKE NETWORKS brand. Sales in the Fluke Networks business
are generally made through direct sales personnel as well as
independent distributors.
The Tektronix Instruments business offers general purpose
test products as well as a variety of video test, measurement
and monitoring products. Tektronix’s general purpose products,
including oscilloscopes, logic analyzers, signal sources and
spectrum analyzers, are used to capture, display and analyze
streams of electrical data. Typical users include research and
development engineers who use these products to design, de-
bug and manufacture electronic components, subassemblies
and end-products in a wide variety of industries, including the
communications, computer, consumer electronics, education,
military/aerospace and semiconductor industries. Tektronix’s
video test products include waveform monitors, video signal
generators, compressed digital video test products and
other test and measurement equipment used to help ensure
delivery of the best possible video experience to the viewer.
Typical users of these products include video equipment
manufacturers, content developers and traditional television
broadcasters. Products in this business are marketed under
the TEKTRONIX and MAXTEK brands. Sales in the Tektronix
business are generally made through direct sales personnel as
well as independent distributors and resellers.
The Tektronix Communications business offers network
management solutions, network diagnostic equipment
and related support services for both fixed and mobile
telecommunications networks. Network management tools
continuously manage network performance and help optimize
the service performance of the communications network.
Network diagnostic equipment is used to test and monitor
telecommunications networks. Typical users of these products
include telecommunication network operators and technicians.
Products in this business are marketed under the TEKTRONIX
brand. Sales in the Tektronix Communications business are
generally made through direct sales personnel as well as
independent distributors and resellers.
Test and measurement business manufacturing facilities are
located in North America, Europe, and Asia. All of our test and
measurement businesses are leaders in their served market
5
segments. The test and measurement industry continues to
be very competitive, both in the United States and abroad.
We face competition from companies who compete with
us in multiple product categories and from companies who
compete with us in specialized areas of test and measurement.
Competition in the Fluke businesses is based on a number of
factors, including the performance, ruggedness, ease of use,
ergonomics and aesthetics of the product and the other factors
described under “—Competition.” Competition in the Tektronix
businesses is also based on a number of factors, including
product performance, technology, customer service, product
availability and price as well as the other factors described
under “—Competition.”
Typical users of these products include dentists, orthodontists,
endodontists, oral surgeons, dental technicians, and other
oral health professionals. Dental professionals choose dental
products based on a number of factors, including product
performance, the product’s capacity to enhance productivity
and the other factors described under “--Competition.” Our
dental products are marketed primarily under the KAVO,
GENDEX,
INTERNATIONAL, PELTON
& CRANE, DEXIS, ORMCO, KERR and TOTAL CARE brands.
Manufacturing facilities are located in Europe, North America,
Canada, Mexico and South America. Sales are generally
made through independent distributors, with the exception of
orthodontic products which are generally sold direct.
IMAGING SCIENCES
6
Medical Technologies
Our Medical Technologies segment offers dentists, other
doctors 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 2007
by geographic destination were: North America, 37%; Europe,
41%; Asia, 14%; 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
2006. The medical technologies businesses serve three main
markets: dental products, acute care diagnostics, and life
sciences instrumentation.
Dental Products. 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.
Acute Care Diagnostics. Our acute care diagnostics business
was created in 2004 through the acquisition of Radiometer and
has since been supplemented by two additional acquisitions.
Our acute care diagnostics business is a leading worldwide
provider of blood gas analysis instruments and related
consumables and services. Sold under the RADIOMETER
brand, these instruments are used to measure blood gases and
related acute care parameters. Typical users of Radiometer
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, the product’s
ability to enhance productivity and the other factors described
under “—Competition.” Manufacturing facilities are located
in Europe and North America, and sales are made primarily
through our direct sales personnel and through distributors in
some countries.
life
Sciences
Life
sciences
Instrumentation. Our
instrumentation business was created in 2005 through the
acquisition 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 pathology instrumentation and associated
consumables, providing a complete line of instruments used in
the preparation of tissue samples for examination by medical
and research pathologists.
Our life sciences products include:
• optical and laser scanning microscopes;
• automated specimen preparation instruments and
related reagents;
• pathology diagnostic tests, including cancer
diagnostics; and
• surgical and other stereo microscopes.
Typical users of our products include research, medical and
surgical professionals operating in research and pathology
laboratories, 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, the comprehensiveness of the
related reagent portfolio and the other factors described under
“—Competition.” We generally market our products under the
LEICA brand. Manufacturing facilities are located in Europe,
Australia, Asia and the United States. The businesses sell to
customers through a combination of our direct sales personnel,
independent representatives and independent distributors.
Industrial Technologies
Businesses in our Industrial Technologies segment manufacture
products and sub-systems that are typically incorporated
by customers and systems integrators into production and
packaging 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, 2007, our Industrial Technologies segment
encompassed two strategic lines of business, motion and
product identification, and two focused niche businesses,
aerospace and defense, and sensors and controls. Sales for
this segment in 2007 by geographic destination were: United
States, 50%; Europe, 34%; Asia, 11%; and other regions, 5%.
Product Identification. We entered the product identification
market through the acquisition of Videojet in 2002, and have
expanded our product and geographic coverage through various
subsequent acquisitions, including the acquisitions of Willett
International 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 businesses 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 applications. Typical users of these products include food
and beverage manufacturers, pharmaceutical manufacturers,
retailers, package and parcel delivery companies, the United
States Postal Service and commercial printing and mailing
operations. Customers in this industry choose suppliers based
on a number of factors, including printer speed and accuracy,
equipment uptime and reliable operation without interruption,
ease of maintenance, service coverage and the other factors
described under “—Competition.” Our product identification
products are marketed under a variety of brands, including
VIDEOJET, ACCU-SORT, WILLETT, ZIPHER, ALLTEC and LINX.
Manufacturing facilities are located in the United States, Europe,
South America, and Asia. Sales are generally made through our
direct sales personnel and independent distributors.
Motion. 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 providers
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
bearings, clutches/brakes, and linear actuators)
These products are sold in various precision motion markets
such as packaging equipment, medical equipment, robotics,
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, the geographical coverage offered by the supplier
and the other factors described under “—Competition.” Our
motion products are marketed under a variety of brands,
7
including 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.
Aerospace and Defense. Our aerospace and defense business
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
aircraft 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
experience with the particular technology or application in the
aerospace and defense industry, product reliability and the
other factors described under “—Competition.” 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.
Sensors & Controls. Our sensors & controls products include
instruments that measure and control discrete manufacturing
variables such as temperature, position, quantity, level, flow,
and time. Users of these products span a wide variety of
manufacturing markets. Certain businesses included in this
group also make and sell instruments, controls and monitoring
systems used by the electric utility industry to monitor their
transmission and distribution systems. These products are
marketed under a variety of brands, including DYNAPAR,
HENGSTLER, PARTLOW, PREDYNE, WEST, NAMCO, GEMS
SENSORS, SETRA, QUALITROL and HATHAWAY. Sales are
generally made through our direct sales personnel 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, 2007, 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 2007 by geographic destination were: United States, 83%;
Europe, 5%; Asia, 7%; and other regions, 5%.
Mechanics’ Hand Tools. The mechanics’ hand tools business
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
purpose 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
CRAFTSMAN line of mechanics’ hand tools for over 65 years.
Matco manufactures and distributes professional tools,
toolboxes 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 quality,
brand, price, relevant innovative features and the other factors
described under “—Competition.”
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.
Manufacturing facilities are located in the United States
and Asia. Sales are generally made through independent
distributors and retailers.
Delta Consolidated Industries. Delta is a leading manufacturer
of automotive truckboxes and industrial gang boxes, which
it sells primarily under the DELTA and JOBOX brands.
8
These products are used by both commercial users, such as
contractors, and individual consumers. Sales are generally
made through independent distributors and retailers.
Hennessy Industries. Hennessy is a leading North American
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, independent distributors, retailers, and original
equipment manufacturers.
Jacobs Chuck Manufacturing Company. Jacobs 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
position
in drill chucks. Customers are primarily major
manufacturers of portable power tools, and sales are typically
made through our direct sales personnel.
Jacobs Vehicle Systems (“JVS”). JVS is a leading worldwide
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
manufacturers 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.
The following discussions of Materials, Intellectual Property,
Competition, Seasonal Nature of Business, Backlog, Employee
Relations, Research and Development, Government Contracts,
International Operations, Major
Regulatory Matters,
Customers and Other Matters include information common to
all of our segments.
Materials
Our manufacturing operations employ a wide variety of
raw materials, including steel, copper, cast iron, electronic
components, aluminum, plastics and other petroleum-based
products. We purchase raw materials from a large number of
independent sources around the world. No single supplier is
material, although for some of the components that we use that
require particular specifications there may be a limited number of
suppliers that can readily provide such components. There have
been no raw materials shortages that have had a material adverse
impact on our business as a whole. Market forces have driven
significant increases in the costs of steel and petroleum-based
products over the last three years, and the costs of non-ferrous
metals have also generally increased over the last eighteen
months. We have passed certain of these cost increases on to
customers in the form of price increases. For a further discussion
of risks related to the materials and components required for our
operations, please refer to “Item 1A. Risk Factors.”
Intellectual Property
We own numerous patents, trademarks, copyrights, 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
trademark to be of material importance to any segment or to
the business 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.
9
Competition
Backlog
Although our businesses generally operate
in highly
competitive markets, our competitive position cannot be
determined accurately in the aggregate or by segment since
none of our competitors offer all of the same product lines
or serve all of the same markets as we do. Because of the
diversity of the products we sell and the variety of markets we
serve, we encounter a wide variety of competitors, including
well-established regional or specialized 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, distribution
network, and brand name. For a discussion of risks related to
competition, please refer to “Item 1A. Risk Factors.”
The table below provides the unfulfilled orders attributable to each
of our four segments as of the end of each year ($ in millions):
As of December 31
Segment
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
2007
$ 597
235
811
66
2006
$ 252
192
719
65
We expect that a large majority of unfilled orders will be delivered
to customers within 3 to 4 months. Given the relatively short
delivery periods and rapid inventory turnover that are characteristic
of most of our products and the shortening of product life cycles,
we believe that backlog is indicative of short-term revenue
performance but not necessarily a reliable indicator of medium or
long-term performance.
Seasonal Nature of Business
Employee Relations
At December 31, 2007, we employed approximately 50,000
persons, of which approximately 24,000 were employed in the
United States. Of these United States employees, approximately
2,500 were hourly-rated unionized employees. We also have
government-mandated collective bargaining arrangements 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.
10
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
immediately 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.
Working Capital
We maintain an adequate level of working capital to support
our business needs. There are no unusual industry practices or
requirements relating to working capital items.
Research and Development
The table below describes our research and development
expenditures over each of the last three years, by segment and
in the aggregate ($ in millions):
For the Year Ended December 31
Segment
2007
2006
2005
Professional Instrumentation **
$ 272
$ 174
$ 157
Medical Technologies
Industrial Technologies
Tools & Components
Total
168
150
11
123
133
10
75
130
12
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 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 penalties 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.”
$ 601
$ 440
$ 374
Regulatory Matters
** Included in 2007 research and development expenses for
Environmental, Health & Safety
the Professional Instrumentation segment is a charge for $60
million related to acquired in-process research and development
in connection with the Tektronix acquisition.
We conduct research and development activities for the purpose
of developing new products, enhancing the functionality,
effectiveness, ease of use and reliability of our existing products
and expanding the applications for which uses of our products are
appropriate. We anticipate that we will continue to make significant
expenditures for research and development as we seek to provide
a continuing flow of innovative products to maintain and improve
our competitive position. For a discussion of the risks related to
the need to develop and commercialize new products and product
enhancements, please refer to “Item 1A. Risk Factors.”
Government Contracts
Although the substantial majority of our revenue in 2007 was
from customers other than governmental entities, we have
agreements relating to the sale of products to government entities,
primarily involving products in the aerospace and defense,
product identification, water quality and motion 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 conditions that are
not applicable to private contracts. Our agreements 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
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 generation,
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 regulations
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 expenditures, earnings or
competitive position, and we do not anticipate material capital
expenditures for environmental control facilities. 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 damages associated 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 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 agencies pursuant to
statutory authority. We have 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 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 and regulations. We have
11
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
manufacture, sale, and distribution of medical devices, including
their introduction into interstate commerce, manufacture,
advertising, labeling, packaging, marketing, distribution and
record keeping. Pursuant to the FDCA and FDA regulations,
certain facilities of our operating subsidiaries are registered
with the 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
premarket notification requirements of the FDCA, or cleared
pursuant 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 agencies of other countries, please refer to
“Item 1A. Risk Factors.”
In addition, certain of our products utilize radioactive material.
We are subject to federal, state and local regulations
governing the management, storage, handling and disposal of
these materials.
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. 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 with respect
to sites owned or formerly owned by the Company and its
subsidiaries. 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
the Company determines that potential remediation liability
for properties currently or previously owned is probable and
reasonably estimable, it accrues the total estimated costs,
including investigation and remediation costs, associated with
the site. We also estimate our exposure for environmental-
related personal injury claims and accrue for this estimated
liability as such claims become known. While we actively
pursue insurance recoveries as well as recoveries from other
potentially responsible parties, we do not recognize any
insurance recoveries for environmental liability claims until
realization is deemed probable and reasonably estimable. 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, 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 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, we cannot assure you that our
estimates of environmental liabilities will not change.
In view of our financial position and reserves for environmental
remediation matters and environmental-related personal injury
claims and based on current information and the applicable
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.”
12
Export/Import Compliance
We are required to comply with various export/import 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
impose
and Security, which, among other things,
licensing requirements on the export or re-export of
certain dual-use goods, technology and software (which
are items that potentially have both commercial and
military applications);
• the regulations administered by the U.S. Department of
Treasury, Office of Foreign Assets Control, which implement
economic sanctions imposed against designated countries,
governments and persons based on United States foreign
policy and national security considerations; and
Year Ended December 31
Segment
2007
2006
2005
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
Total percentage of revenue
derived outside of the U.S.
55%
63%
50%
17%
53%
66%
50%
14%
53%
73%
38%
14%
51%
49%
44%
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 years, by segment and in the aggregate:
Year Ended December 31
Segment
2007
2006
2005
Professional Instrumentation
Medical Technologies
Industrial Technologies
Tools & Components
45%
60%
19%
6%
44%
43%
55%
24%
6%
42%
41%
87%
18%
6%
42%
13
• the import regulatory activities of the U.S. Customs and
Total
Border Protection.
Non-United States governments have also implemented
similar export and import control regulations, which may
affect our operations or transactions subject to their
jurisdictions. For a discussion of risks related to export/
import control and economic sanctions laws, please refer to
“Item 1A. Risk Factors.”
International Operations
Our products and services are available worldwide. We believe
this geographic diversity allows us to draw on the skills of a
worldwide workforce, provides stability to our operations,
allows us to drive economies of scale, provides revenue streams
to offset economic trends in individual economies and offers us
an opportunity to access new markets for products. In addition,
we believe that future growth is dependent in part on our ability
to develop products and sales models that target developing
countries. The table below describes annual revenue derived
outside the U.S. as a percentage of total annual revenue for
each of the last three years, by segment and in the aggregate:
For additional information related to revenues and long-lived
assets by country, please refer to Note 16 to the Consolidated
Financial Statements.
The manner in which our products and services are sold differs
by business and by region. Most of our sales in non-U.S.
markets are made by subsidiaries located outside the United
States, though we also sell into non-U.S. markets through
various representatives and distributors and directly from the
U.S. In countries with low sales volumes, we generally sell
through representatives and distributors.
information about our
international operations
is
Financial
contained in Note 16 of the Consolidated Financial Statements
included in “Item 8. Financial Statements and Supplementary
Data,” and information about the possible effects of foreign
currency fluctuations on our business is set forth in “Item 7.
Management’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 2007, 2006 or 2005.
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 furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act, as soon as reasonably practicable after filing such material
electronically with, or furnishing such material to, the SEC. Our
Internet 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
Our Corporate Governance Guidelines, the charters of each
of the Audit Committee, the Compensation Committee and
the Nominating and Governance Committee of the Board of
Directors, and the Danaher Standards of Conduct (including
code of ethics provisions that apply to our principal executive
officer, principal financial officer, principal accounting officer
and other senior financial officers) are available in the
“Investors – Corporate Governance” section of our website at
www.danaher.com. Stockholders may request a free copy of
these documents 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 29, 2007
in accordance with the NYSE listing standards.
14
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties
described below, together with the information included
elsewhere in this Annual Report on Form 10-K and other
documents we file with the SEC. The risks and uncertainties
described below are those that we have identified as material,
but are not the only risks and uncertainties facing us. Our
business is also subject to general risks and uncertainties that
affect many other companies, such as overall U.S. and non-U.S.
economic and industry conditions, a global economic slowdown,
geopolitical events, changes in laws or accounting rules,
fluctuations in interest rates, terrorism, international conflicts,
major health concerns, natural disasters or other disruptions
of expected economic or business conditions. Additional risks
and uncertainties not currently known to us or that we currently
believe are immaterial also may impair our business, including
our results of operations, liquidity and financial condition.
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 markets we serve, we encounter a wide variety of
competitors. We are facing increased competition in a number
of our served markets as a result of the entry of new, large
companies into certain markets, and as a result of increasing
consolidation in particular markets. 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
maintain our leadership position in various product categories
and penetrate new markets. Our failure to compete effectively
may reduce our revenues, profitability and cash flow, and
pricing pressures may adversely impact our profitability.
Our growth depends in part on the timely development
and commercialization, and customer acceptance, of
new products and product enhancements based on
technological innovation.
industries that are
We generally sell our products
characterized by rapid technological changes, frequent new
product introductions and changing industry standards. If we
do not develop new products and product enhancements based
in
on technological innovation on a timely basis, our products will
become technologically obsolete over time and our revenues,
cash flow, profitability and competitive position will suffer. Our
success will depend on several factors, including our ability to:
• correctly identify customer needs and preferences and
predict future needs and preferences;
• encourage customers to adopt new technologies;
• anticipate our competitors’ development of new products
and technological innovations;
• obtain adequate intellectual property rights;
• innovate and develop new technologies and applications
that are accepted by our customers; and
• successfully commercialize new technologies in a
timely manner.
In addition, if we fail to accurately predict future customer
needs and preferences or fail to produce viable technologies,
we may invest heavily in research and development of products
that do not lead to significant revenue. Even if we successfully
innovate and develop new products and product enhancements,
we may incur substantial costs in doing so, and our profitability
may suffer.
Our growth rate could decline if the markets into
which we sell our products decline or do not grow
as anticipated.
Visibility into our markets is limited. Our quarterly sales and
operating results depend substantially on the volume and
timing of orders received during the quarter, which are difficult
to forecast. Any decline in our customers’ markets would likely
result in diminished demand for our products and services and
would adversely affect our growth rate and profitability.
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 2007
we acquired twelve businesses for an aggregate purchase
price of approximately $3.6 billion (including transaction costs
and net of cash acquired); during 2006 we acquired eleven
businesses for an aggregate purchase price of approximately
$2.7 billion (including transaction costs and net of cash
15
acquired); and during 2005 we acquired 13 businesses for
an aggregate purchase price of approximately $885 million
(including transaction costs and net of cash acquired). Our
acquisitions involve a 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 grow at or above our historic rates
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 accounting or regulatory requirements or any
further deterioration in the credit markets could also adversely
impact our ability to consummate acquisitions or change the
accounting treatment for acquisitions. For example, as a result
of the recently issued Statement of Financial Accounting
Standard (SFAS) No. 141 (R), Business Combinations, which
will be effective for fiscal years beginning after December
15, 2008, we will be required to expense certain acquisition-
related items that under current accounting rules do not impact
our income statement.
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 you
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
businesses we have sold, such as lawsuits, product liability
claims and environmental matters, and agreed to indemnify the
purchasers 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
financial condition but we can not be certain that this favorable
pattern will continue.
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, trademarks, copyrights, trade
secrets and licenses to intellectual property owned by others,
which in aggregate are important to our operations. The steps
that we and our licensors have taken to maintain and protect our
intellectual property may not prevent it from being challenged,
invalidated or circumvented, particularly in countries where
intellectual property rights are not highly developed or
protected. 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
intellectual 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
16
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 products, claims relating to intellectual property matters
and claims involving employment matters, commercial disputes,
environmental 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.
Our operations expose us to the risk of environmental
liabilities, costs, litigation and violations that could
adversely affect our financial condition, 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
generation, 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 operations. 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 current
waste disposal practices or other hazardous materials handling
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 exposures 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.
Our businesses are subject to extensive regulation;
failure to comply with those regulations could
adversely affect our results of operations, 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 and other 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 dealings with or between our employees and
subsidiaries. In certain circumstances, export control and
economic sanctions regulations may prohibit the export of
certain products, 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 to warning
injunctions,
letters, declining sales, recalls, seizures,
17
administrative detentions, refusals to permit importations,
suspension or withdrawal of approvals and pre-market
notification rescissions. Our products and operations are
also often subject to the rules of industrial standards bodies
such as the International Standards Organization (ISO), and
failure to comply with these rules can also adversely impact
our business.
• 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 termination,
reduction or modification in the event of changes in
government requirements, reductions in federal spending
and other factors. We are also subject to investigation
and audit for compliance with the requirements governing
government contracts,
including requirements related
integrity, export control, employment
to procurement
practices, 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
debarment from government contracting or subcontracting.
18
In addition, failure to comply with any of these regulations
could result in civil and criminal, monetary and non-monetary
penalties, disruptions to our business, limitations on our
ability 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 payments
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 jurisdictions,
could lead to substantial civil or criminal, monetary and non-
monetary penalties against us or our subsidiaries, and could
damage our reputation.
Changes in our tax rates or exposure to additional
income tax liabilities could affect our profitability.
In addition, audits by tax authorities could result in
additional tax payments for prior periods.
We are subject to income taxes in the U.S. and in various
foreign jurisdictions. Domestic and international tax liabilities
are subject to the allocation of income among various tax
jurisdictions. Our effective tax rate can be affected by changes
in the mix of earnings in countries with differing statutory
tax rates (including as a result of business acquisitions and
dispositions), changes in the valuation of deferred tax assets
and liabilities, accruals related to contingent tax liabilities,
the results of audits and examinations of previously filed tax
returns and changes in tax laws. Any of these factors may
adversely affect our tax rate and decrease our profitability. 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
adjustments to our tax liabilities.
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. We have substantial assets, liabilities,
revenues and expenses denominated in currencies other
than the U.S. dollar, and to prepare our consolidated financial
statements, we must translate these items into U.S. dollars at
the applicable exchange rates. In addition, we are a large buyer
of steel, non-ferrous metals and petroleum-based products, as
well as other commodities required for the manufacture of
products. As a result, 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. Some
of our businesses purchase their requirements of certain of
these items from sole or limited source suppliers. If we cannot
obtain sufficient quantities of materials, components and
equipment 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, product shipments
may be delayed or our material or manufacturing costs may
increase. 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.
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
comply 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 customer
needs created by these regulations. Any significant change in
any of these regulations could reduce demand for our products
or increase our costs of producing these products. In addition,
in certain of our markets our growth depends in part upon the
introduction of new regulations, and the failure of governmental
and other entities to adopt new regulations could adversely
affect our growth rate. In addition, certain of our customers
receive reimbursement from government insurance programs
for some of the costs of the products that they purchase from
us. Reductions in these reimbursement rates adversely impact
the demand for our products.
distributors and other partners, or adverse developments
in their financial condition or performance, could adversely
affect our results of operations and cash flows. In addition, the
consolidation of distributors in certain of our served industries,
as well as the formation of large and sophisticated purchasing
groups in industries such as healthcare, could adversely impact
our profitability.
The 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 savings
and other benefits that the effective implementation of the
Danaher Business System can achieve; and
• otherwise profitably grow our business.
International economic, political, legal and business
factors could negatively affect our results of
operations, cash flows and financial condition.
In 2007, approximately 51% of our sales were derived outside
the U.S. Since our growth strategy depends in part on our
ability to further penetrate markets outside the U.S., we expect
to continue to increase our sales outside the U.S., particularly
in emerging markets. In addition, many of our manufacturing
operations and suppliers are located outside the U.S. Our
international business is subject to risks that are customarily
encountered in non-U.S. operations, including:
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
products 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 competitors’ 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
• 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, including negative consequences from
changes in tax laws;
• limitations on ownership and on repatriation of earnings;
• difficulty in staffing and managing widespread operations;
19
If we suffer loss to our facilities or distribution
system due to catastrophe, our operations could be
seriously harmed.
Our facilities and distribution system are subject to catastrophic
loss due to fire, flood, terrorism or other natural or man-
made disasters. If any of these facilities were to experience
a catastrophic loss, it could disrupt our operations, delay
production, shipments and revenue and result in large expenses
to repair or replace the facility.
Our indebtedness may limit our use of our cash flow.
As of December 31, 2007, we had approximately $3.7 billion
in outstanding indebtedness. In addition, we had the ability to
incur an additional $0.9 billion of indebtedness in the form of
commercial paper or bank loans under our outstanding facilities
and programs. We may also obtain additional long-term debt
and lines of credit to meet future financing needs. Our debt
level and related debt service obligations could have negative
consequences, including:
• requiring us to dedicate significant cash flow from
operations to the payment of principal and interest on our
debt, which would reduce the funds we have available for
other purposes;
• reducing our flexibility in planning for or reacting to
changes in our business and market conditions; and
• exposing us to interest rate risk since a portion of our debt
obligations are at variable rates.
We may incur significantly more debt in the future. If we add
new debt, the risks described above could increase. In addition,
any further deterioration in the credit markets may impact the
availability and cost of future debt borrowings.
• differing labor regulations;
• differing protection of intellectual property; and
• terrorist activities and the U.S. and international
response thereto.
Any of these risks could negatively affect our results of
operations, cash flows, financial condition and overall growth.
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
historically experienced periodic downturns, which have
adversely impacted demand for the equipment and services
that we manufacture and market. Any competitive pricing
pressures, slowdown in capital investments or other downturn
in these industries could adversely affect our financial condition
and results of operations in any given period.
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
generally 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.
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.
20
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None
ITEM 2. PROPERTIES
We consider our facilities suitable and adequate for the
purposes 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 11 in the Consolidated
Financial Statements included in this Annual Report for
additional information with respect to our lease commitments.
Our corporate headquarters are located in Washington, D.C.
in a facility that we lease. At December 31, 2007, we had
213 significant manufacturing and distribution
locations
worldwide, comprising approximately 21 million square feet,
of which approximately 13 million square feet are owned
and approximately 8 million square feet are leased. Of these
manufacturing and distribution locations, 115 facilities are
located in the United States and 98 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 is:
ITEM 3. LEGAL PROCEEDINGS
legal proceedings, please see
For a discussion of
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources –
Legal Proceedings”.
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 2007.
• Professional Instrumentation, 67;
• Medical Technologies, 46;
• Industrial Technologies, 65; and
• Tools & Components, 35.
21
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
James A. Lico
Thomas P. Joyce, Jr.
James H. Ditkoff
Jonathan P. Graham
Robert S. Lutz
Daniel A. Raskas
Age
56
Position
Chairman of the Board
51
44
44
53
42
47
61
47
50
41
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
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
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 securities. Mr.
Rales is a brother of Mitchell P. Rales.
22
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 securities. 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 Development from April 2004
to April 2005.
Philip W. Knisely has served as Executive Vice President since he joined Danaher in June 2000.
James A. Lico was appointed Executive Vice President in September 2005. He has served in a variety of general management
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, including most recently as Vice President and Group Executive of Danaher Corporation from
December 2002 until May 2006.
James H. Ditkoff 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 September 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.
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 Managing Director
from 2001 through October 2004.
23
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 15, 2008, there were
approximately 3,193 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:
2007
Low
$ 69.11
$ 69.61
$ 72.90
$ 80.04
Dividends
Per Share
$ .02
$ .03
$ .03
$ .03
High
$ 65.42
$ 68.47
$ 69.05
$ 75.28
2006
Low
$ 54.04
$ 60.63
$ 59.72
$ 66.87
Dividends
Per Share
$ .02
$ .02
$ .02
$ .02
High
$ 75.97
$ 76.09
$ 84.35
$ 89.22
First quarter
Second quarter
Third quarter
Fourth quarter
Our payment of dividends in the future will be determined by our Board of Directors and will depend on business conditions, our
earnings and other factors.
Issuer Purchase of Equity Securities
24
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 privately 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 available for use in connection with the Company’s existing stock plans
(or any successor plan) and for other corporate purposes.
During 2007, the Company repurchased 1.64 million shares of Company common stock in open market transactions at a cost
of $117 million. None of the repurchases were made during the fourth quarter of 2007. These repurchases were funded from
available cash and from proceeds from the issuance of commercial paper. During 2005, the Company repurchased 5 million
shares of Company common stock in open market transactions at an aggregate cost of $258 million. The 2005 repurchases
were funded from available cash and from borrowings under uncommitted lines of credit. At December 31, 2007, the
Company had approximately 3.4 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 proceeds from the
issuance of commercial paper.
In addition, during the fourth quarter of 2007, holders of an aggregate of 3,202 Liquid Yield Option Notes (LYONs) converted the
LYONs into an aggregate of 46,539 shares of Danaher common stock, par value $0.01 per share. The shares of common stock were
issued solely to an existing security holder upon conversion of the LYONs pursuant to the exemption from registration provided
under Section 3(a)(9) of the Securities Exchange Act 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share information)
Sales
Operating Profit
Earnings from
2007
2006
2005
2004
2003
$ 11,025,917
$ 9,466,056
$ 7,871,498
$ 6,776,505
$ 5,184,135
1,740,709
1,500,210
1,247,575
1,089,573
834,999
(a)
continuing operations
1,213,998
1,109,206
885,609
735,013
531,912
(a)
Earnings from discontinued
operations, net of tax
Net earnings
Earnings per share from
continuing operations:
Basic
Diluted
Earnings per share from
discontinued operations:
Basic
Diluted
Net earnings per share:
Basic
Diluted
155,906
(b)
12,823
1,369,904
1,122,029
12,191
897,800
10,987
746,000
4,922
(a)
536,834
$ 3.90
$ 3.60
$ 2.87
$ 2.38
$ 1.73
3.72
3.44
2.72
2.27
1.67
$ 0.50
0.47
$ 4.40
4.19
(b)
(b)
(b)
(b)
$ 0.04
$ 0.04
$ 0.03
$ 0.02
0.04
0.04
0.03
0.02
$ 3.64
$ 2.91
$ 2.41
$ 1.75
3.48
2.76
2.30
1.69
(a)
(a)
(a)
(a)
Dividends per share
$ 0.11
$ 0.08
$ 0.07
$ 0.058
$ 0.05
Total assets
Total debt
$ 17,471,935
$ 12,864,151
$ 9,163,109
$ 8,493,893
$ 6,890,050
25
$ 3,726,244
$ 2,433,716
$ 1,041,722
$ 1,350,298
$ 1,298,883
(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 $211 million ($150 million after-tax or $0.45 per diluted share) gain on sale of the Company’s power quality business.
Refer to Note 3 of the Notes to the Consolidated Financial Statements for additional information.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) is designed to provide a
reader of the Company’s financial statements with a narrative
from the perspective of Company management. The Company’s
MD&A is divided into four main sections:
• Overview
• Results of Operations
• Liquidity and Capital Resources
• Critical Accounting Policies
The following discussion and analysis should be read in conjunction
with the Company’s audited consolidated financial statements.
Overview
Danaher 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 compared to Danaher’s
peer companies; and
• upper quartile cash flow generation from operations
compared to Danaher’s 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
performance in critical areas of quality, delivery, cost and
innovation. Within the DBS framework, the Company also
pursues a number of ongoing strategic initiatives intended to
improve operational performance, including global sourcing of
materials and services and innovative product development.
The Company also acquires businesses that it believes can
help it achieve the objectives described above, and believes
that many acquisition opportunities remain available within its
target markets. 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 strategic
line of business. The extent to which appropriate acquisitions
are made and effectively integrated can affect the Company’s
overall growth and operating results. The Company also
continually assesses the strategic fit of its existing businesses
and may divest businesses that are not deemed to strategically
fit with ongoing operations or are not achieving the desired
return on investment.
Danaher is a multinational corporation with global operations.
In 2007, approximately 51% 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
consolidated 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 overall outlook for the Company. The Company’s
individual businesses 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
revenue in the short term 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 businesses and in the economy.
Significant Acquisitions and Divestitures
In November 2007, the Company significantly expanded its test
and measurement business with the acquisition of all of the
outstanding shares of Tektronix, Inc. (Tektronix) for total cash
consideration of approximately $2.8 billion, including transaction
costs and net of cash and debt acquired. Tektronix is a leading
supplier of test, measurement, and monitoring products,
solutions and services for engineers in the communications,
computer, consumer electronics and education industries, as
well as in military/aerospace, semiconductor and a broad range
of other industries worldwide. Tektronix had annual revenues of
approximately $1.1 billion in its most recently completed fiscal
year, and is part of Danaher’s test and measurement business
included in the Professional Instrumentation segment. The
Company funded the purchase price of the Tektronix acquisition
26
with proceeds from the issuance of commercial paper and the
Company’s November 2007 common stock offering (described
below), and to a lesser extent from available cash.
Tektronix is expected to provide additional sales and earnings
growth opportunities for the Company’s test and measurement
business, both through the growth of existing products and
services and through the potential acquisition of complementary
businesses. The combination of Tektronix with Danaher’s
existing test and measurement businesses is also expected
to yield significant cost reductions. Company management
and other personnel are devoting significant attention to the
successful integration of the Tektronix business into Danaher.
On November 7, 2007, the Company completed the underwritten
public offering of 6.9 million shares of Danaher common stock at
a price to the public of $82.25 per share. The net proceeds, after
expenses and the underwriters’ discount, were approximately
$550 million, which were used to partially fund the acquisition
of Tektronix. In addition, on December 11, 2007, the Company
completed the underwritten public offering of $500 million
aggregate principal amount of 5.625% senior notes due 2018
(the “2018 Notes”). The net proceeds, after expenses and
the underwriters’ discount, were approximately $493 million,
which were used to repay a portion of the commercial paper
issued to finance the acquisition of Tektronix.
In July 2007, the Company acquired all of the outstanding
shares of ChemTreat, Inc. (ChemTreat) for a cash purchase
price of $425 million including transaction costs. No cash was
acquired in the transaction. ChemTreat is a leading provider
of industrial water treatment products and services, and had
annual revenues of $200 million in its most recent completed
fiscal year. ChemTreat is part of the Company’s environmental
business included within the Professional Instrumentation
segment. ChemTreat is expected to provide additional sales and
earnings growth opportunities for the Company’s water quality
business both through the growth of existing products and
services and through the potential acquisition of complementary
businesses. The Company financed the acquisition of ChemTreat
primarily with proceeds from the issuance of commercial paper
and to a lesser extent from available cash.
Also during July 2007, the Company completed the sale of its
power quality business for a cash sales price of $275 million
net of transaction costs and recorded an after-tax gain of $150
million ($0.45 per diluted share). Prior to the sale, this business
was part of the Industrial Technologies segment. The Company
has reported the power quality business as a discontinued
operation in this Form 10-K in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. Accordingly,
the results of operations for all periods presented have
been reclassified to reflect the power quality business as a
discontinued operation.
Business Performance
While differences exist among the Company’s businesses, the
Company generally continued to see market growth during the
year ended December 31, 2007. The Company’s year-over-year
growth rates reflect continued strength in global economic
conditions, particularly Europe and Asia, and to a lesser extent,
North America. In addition, the growth reflects the continued
shift of the Company’s operations into higher growth sectors
of the economy. Growth rates slowed somewhat from the rate
experienced in 2006 partially due to difficult comparisons with
sales levels in 2006 within the Company’s product identification
businesses and the impact of regulatory changes in the
Company’s engine retarder business discussed below.
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 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 significance of technology and intellectual
property in the businesses in which the Company operates and
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.
Although the Company has a U.S. dollar functional currency
for reporting purposes, it has manufacturing sites throughout
the world and a substantial portion of its sales are generated
in foreign currencies. Sales by subsidiaries operating outside
of the United States are translated into U.S. dollars using
exchange rates effective during the respective period. As a
result, the Company is exposed to movements in the exchange
27
rates of various currencies against the U.S. dollar. 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.
of ChemTreat in July 2007 and Tektronix in November 2007,
both of which are included in the Professional Instrumentation
segment, and the acquisitions of other smaller businesses in
the Medical Technologies, Professional Instrumentation and
Industrial Technologies segments.
The Company has generally accepted the exposure to exchange
rate movements 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, profit, and
assets and liabilities in the Company’s consolidated financial
statements. On an overall basis, the U.S. dollar weakened
against other major currencies in 2007 and closed the year at
exchange rate levels weaker than the exchange rate levels as of
the end of 2006. The impact of currency rate changes increased
reported sales by approximately 3.5% during the year ended
December 31, 2007 as compared to the year ended December
31, 2006. Any further weakening of the U.S. dollar against other
major currencies would benefit the Company’s future results of
operations. Any strengthening of the U.S. dollar against other
major currencies would adversely impact the Company’s future
sales and results of operations.
28
Results Of Operations
Consolidated sales from continuing operations for the year
ended December 31, 2007 increased approximately 16.5% over
the comparable period of 2006. Sales from existing businesses
contributed 4.5% growth. Acquisitions contributed 8.5% to the
sales growth during 2007. The impact of currency translation
on sales provided 3.5% growth as the U.S. dollar weakened
against other major currencies throughout 2007. References in
this report to sales from existing businesses include sales from
acquired businesses starting from and after the first anniversary
of the acquisition, but exclude currency effect.
The growth in sales from acquisitions in the year ended
December 31, 2007 primarily related to acquisitions in
the Company’s Medical Technologies and Professional
Instrumentation businesses. The acquisitions of Sybron Dental
Specialties, Inc. (Sybron) in May 2006 and Vision Systems
Limited (Vision), at the end of 2006, both of which are part of the
Medical Technologies segment, have contributed the majority
of this year-over-year acquisition-related revenue growth. Also
contributing to the year-over-year growth are the acquisitions
Operating profit margins from continuing operations for the
Company were 15.8% in the year ended December 31, 2007
as compared to 15.9% for the year ended December 31, 2006.
Following are the key factors impacting the year-over-year
comparison of operating profit margins:
• Operating profit margin improvements in the Company’s
existing businesses contributed 85 basis points of margin
improvement primarily as a result of broad-based operating
profit margin improvements across the Company’s business
segments. Operating profit margins benefited from on-
going cost reduction initiatives including application of the
Danaher Business System and 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 segments, and the Company’s low-cost region
sourcing and production initiatives, are both expected to
positively impact operating profit margins at both existing
and newly acquired businesses in future periods.
• The dilutive impact of acquisitions reduced 2007 operating
profit margins by 90 basis points, including the expensing of
approximately $68.2 million of acquisition related charges
for in-process research and development and the fair values
of acquired inventory and deferred revenues during 2007 in
connection with the acquisition of Textronix.
The effective tax rate for 2007 of 25.8% reflects net discrete
tax benefits of approximately $21 million, or $0.07 per diluted
share. New tax legislation that was signed into law in several
taxing jurisdictions during 2007, most notably in Germany
and Denmark, reduced income tax rates for 2008 and future
periods which resulted in a reduction in the Company’s
deferred tax liabilities and a like reduction in 2007 income
tax expense as required under SFAS No. 109, Accounting for
Income Taxes. The lower statutory rates are expected to be
offset by other statutory changes in these jurisdictions, such
that the Company’s effective tax rate in future years will not
be materially reduced as a result of the legislation. Partially
offsetting the benefit from the above tax rate reduction was
the effect of establishing income tax reserves during the year
related to uncertain tax positions in various taxing jurisdiction,
net of the reduction of tax reserves associated with Sweden.
Refer to Note 13 in the Consolidated Financial Statements for
additional information. The Company expects the tax rate for
2008 to be approximately 27%.
The following table summarizes sales by business segment for
each of the periods indicated:
For the Year Ended December 31
($ in millions)
2007
2006
2005
Professional Instrumentation
$ 3,537.9 $2,906.5
$2,600.6
Medical Technologies
2,998.0
2,220.0
1,181.5
Industrial Technologies
3,153.4
2,988.8
2,794.9
Professional Instrumentation
Businesses in the Professional Instrumentation segment offer
professional and technical customers various products and
services that are used in connection with the performance
of their work. The Professional Instrumentation segment
encompasses two strategic businesses: environmental and
test and measurement. These businesses produce and sell
bench top and compact, professional electronic test tools
and calibration equipment; water quality instrumentation and
consumables and ultraviolet disinfection systems; industrial
water treatment solutions; and retail/commercial petroleum
products and services,
including dispensers, payment
systems, underground storage tank leak detection and vapor
recovery systems.
Tools & Components
1,336.6
1,350.8
1,294.5
Existing businesses
Total
$11,025.9 $9,466.1
$7,871.5
Acquisitions
Professional Instrumentation Selected Financial Data
For the Year Ended December 31
($ in millions)
Sales
Operating Profit
Depreciation and
amortization
Operating profit
as a % of sales
Depreciation and
amortization
as a % of sales
2007
$ 3,537.9
709.5
2006
$ 2,906.5
625.6
2005
$ 2,600.6
538.3
64.8
48.8
47.8
20.1%
21.5%
20.7%
1.8%
1.7%
1.8%
Components of Sales Growth
2007 vs. 2006
2006 vs. 2005
6.5%
12.0%
3.5%
22.0%
7.5%
4.0%
0.5%
12.0%
Currency exchange rates
Total
29
2007 Compared To 2006
As detailed in the table above, segment sales for Professional
Instrumentation increased 22.0% for 2007 compared to
2006. Sales from existing businesses increased in both of
the segment’s strategic lines of business. Prices accounted
for approximately 1.5% sales growth and the impact of that
increase is reflected in sales from existing businesses.
Operating profit margins were 20.1% in 2007 compared to
21.5% in 2006. Operating profit margin improvements of 135
basis points related to existing businesses were more than
offset by the dilutive impact of lower operating profit margins
of acquired businesses, which reduced segment operating
profit margins by 260 basis points compared to 2006. Included
in the dilutive impact on operating margins from acquired
businesses is approximately $68 million (185 basis points) in
charges associated with the acquisition of Tektronix, primarily
related to acquired in-process research and development
activities, acquired inventory and acquired deferred revenue.
In addition, year over year comparisons are impacted by a gain
on the sale of real estate during 2006 and recovery of certain
previously written-off receivables during 2006 which increased
that period’s operating profit margins by 15 basis points.
Overview of Businesses within Professional
Instrumentation Segment
Environmental. Sales from the Company’s environmental
businesses, representing approximately 60% of segment sales
for 2007, increased 16.5% in 2007 compared to 2006. Sales from
existing businesses accounted for 6.0% growth. Acquisitions
accounted for 7.0% growth and currency translation accounted
for 3.5% growth.
New product offerings in the thermography, power quality test
and process calibration markets generated strong sales in the
electrical and industrial channels in all major geographical
areas during 2007. The network test business experienced
mid-single digit revenue growth in 2007 compared to 2006.
Large orders from telecommunications carriers in the United
States during the first three quarters of 2007 and cable test
equipment sales in Europe were the primary drivers of the
network test growth.
The Company’s water quality businesses experienced low-
double digit revenue growth for 2007 compared to 2006,
primarily as a result of strength in sales of laboratory and process
instrumentation products in all major geographic regions. In
addition, sales of the Company’s ultraviolet water treatment
systems grew double-digit compared to 2006. Investment in
sales forces and other growth initiatives, in addition to continued
penetration of the Asian wastewater market, including a
significant reclamation project in Australia, contributed to the
growth. Sales growth from acquisitions primarily relates to
the acquisition of ChemTreat in July 2007. The acquisition of
ChemTreat expands the scope of the water quality business in
the area of industrial water treatment solutions and is expected
to provide additional sales and earnings growth opportunities
from existing products and services and through the potential
acquisition of complementary businesses.
The Gilbarco Veeder-Root retail petroleum equipment business
experienced low-single digit revenue growth in 2007 compared
to 2006. The business’ point of sale payment systems and
service business enjoyed robust growth in 2007, primarily in
Europe. In addition, the business experienced strong demand
during 2007 for its recently introduced leak detection systems
in North America and China during 2007. These sales gains
were offset by difficult prior year comparisons, a result of
strong dispenser sales in 2006 due to extensive refurbishment
activity in Europe and regulatory mandates in Mexico that did
not repeat in 2007.
Test and Measurement. Sales from the Company’s test and
measurement businesses, representing approximately 40%
of segment sales for 2007, grew 31.5% compared to 2006.
Sales from existing businesses accounted for 8.0% growth.
Acquisitions accounted for 20.0% growth and currency
translation accounted for approximately 3.5% growth.
Acquisition growth was primarily related to the acquisition
of Tektronix in addition to several smaller acquisitions
throughout the year. The acquisition of Tektronix in November
2007 substantially increases the product line and geographic
scope of the test and measurement business, particularly in
Asia, and is expected to provide additional sales and earnings
growth of existing products and services and through the
potential acquisition of complementary businesses. The
combination of Tektronix with Danaher’s existing test and
measurement business is also expected to yield significant
cost reductions.
2006 Compared To 2005
Professional Instrumentation segment sales increased 12%
for 2006 compared to 2005. Price increases contributed 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 businesses 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
implementation of SFAS No. 123R reduced operating profit for
the segment by approximately $14.7 million and contributed to
a 50 basis point reduction in operating profit margins in 2006
compared to 2005.
30
Overview of Businesses within Professional
Instrumentation Segment
Environmental. Sales from the Company’s environmental
businesses, representing approximately 63% of segment
sales for 2006, increased 10.5% in 2006 compared to 2005.
Sales from existing businesses accounted for 8% growth.
Acquisitions accounted for 2% growth and currency translation
accounted for 0.5% growth.
for the businesses’ thermography and new power quality
test products contributed significantly to this overall growth.
The Company’s network test business reported mid-single
digit sales growth for 2006 compared to 2005. Sales growth
slowed in North America and Europe in 2006 compared to 2005
since 2005 benefited from several new product launches. The
network-test business experienced somewhat stronger sales
growth in China and Latin America in 2006 compared to 2005.
Medical Technologies
The Medical Technologies segment consists of businesses
which offer dentists, other doctors and hospital and research
professionals various products and services that are used in
connection with the performance of their work.
Medical Technologies Selected Financial Data
For the Year Ended December 31
($ in millions)
Sales
Operating Profit
Depreciation and
amortization
Operating profit
as a % of sales
Depreciation and
amortization
as a % of sales
2007
$ 2,998.0
393.2
2006
$ 2,220.0
261.6
2005
$ 1,181.5
138.7
119.7
84.3
44.2
13.1%
11.8%
11.7%
31
4.0%
3.8%
3.7%
Components of Sales Growth
2007 vs. 2006
2006 vs. 2005
Existing businesses
Acquisitions
Currency exchange rates
Total
8.0%
22.0%
5.0%
35.0%
8.5%
78.0%
1.5%
88.0%
The Company’s water quality businesses experienced mid-
single digit sales growth for 2006. This growth was primarily
the result of strength in the business’ laboratory and process
instrumentation products in both the North American and
European markets. Sales in Asia grew over 20% in 2006
reflecting continued penetration of these markets. The business’
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. 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
introduced point of sale equipment were favorably received
which also contributed to this growth.
Test and Measurement. Sales from the Company’s test and
measurement businesses, representing approximately 37%
of segment sales for 2006, grew 14.5% compared to 2005.
Sales from existing businesses 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
experienced high-single digit growth in traditional industrial
channels in all major geographic regions with particular
strength in the Asian and Latin American markets. Demand
2007 Compared To 2006
As detailed in the table above, segment sales increased 35%
for 2007 compared to 2006. Price increases, which are included
in sales from existing businesses, contributed 1.0% to overall
sales growth in 2007 compared to 2006.
although at somewhat lower rates than those experienced in
the European markets. The increase in instrument placements
in 2007 is expected to result in increased consumables sales
in future periods. New product introductions resulting from the
business’ continued research and development efforts are also
contributing to this growth.
Operating profit margin improvements in the segment’s
existing businesses contributed 100 basis points to the overall
operating margin improvement in 2007. Improvements in the
operating profit margins of the dental consumable, acute
care diagnostic and life sciences instrumentation businesses
were partially offset by lower operating profit margins in the
dental equipment businesses. Recently acquired businesses
adversely impacted 2007 operating profit margins by 40 basis
points as compared to 2006. In addition, on a comparative
basis, 2007 operating margins benefited approximately 50
basis points from the adverse impact on 2006 operating
margins that resulted from charges recorded associated with
the fair value of acquired inventory related to the acquisition
of Sybron.
Overview of Businesses within
Medical Technologies Segment
32
The segment’s dental business experienced mid-single digit
revenue growth in 2007 compared to 2006. The business
experienced
increased sales volumes
in
its restorative
and orthodontia products as well as in the instrument and
treatment unit product offerings across all major geographies.
In addition, increased sales of both two-dimensional and
three-dimensional imaging products contributed to the revenue
growth in the European market. This growth was partially
offset by a decline in instrument and treatment unit sales to
Asia reflecting a weak overall Japanese market and the need
to re-register certain products with regulatory authorities in
South Korea.
Radiometer’s acute care diagnostics business experienced high-
single digit revenue growth in 2007 compared to 2006. Increasing
sales of diagnostic instruments in Europe (particularly Russia)
in 2007 contributed to this sales growth. The North American
and Asia/Pacific markets also contributed to the growth,
Leica Microsystems’ life science instrumentation business
experienced mid-teens revenue growth in 2007 compared
to 2006. Robust microscopy demand, particularly confocal
microscopes, in North America and Asia were the primary
growth drivers. The
integration of Vision with Leica
Microsystems has been completed and has generated
incremental revenue growth, the majority of which has been
included as a component of acquisition growth during 2007.
Vision’s revenue grew approximately 30% in 2007 compared to
2006 when it was a stand-alone company.
2006 Compared To 2005
Medical Technologies 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.
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 No. 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.
Overview of Businesses within
Medical Technologies Segment
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
acquisitions subsequent to December 31, 2006 which further
enhanced its imaging product offerings. Sybron experienced
low-double digit sales growth in 2006; however, all Sybron
sales in 2006 are reported as a component of acquisition
growth due to its May 2006 acquisition.
in 2006 compared
Radiometer’s acute care diagnostics business experienced
mid-single digit growth
to 2005.
Radiometer’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
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
component 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 for 2006.
manufacturers (OEMs) into various end-products. 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 encompasses two strategic businesses, motion and
product identification, and two focused niche businesses,
aerospace and defense, and sensors & controls. These
businesses produce and sell product identification equipment
and consumables; motion, position, speed, temperature,
and level instruments and sensing devices; liquid flow and
quality measuring devices; safety devices; and electronic
and mechanical counting and controlling devices. In the third
quarter of 2007, the Company disposed of the power quality
businesses that were part of this segment and all current and
prior year period results of the segment have been adjusted to
exclude the results of these discontinued operations.
Industrial Technologies
Selected Financial Data
For the Year Ended December 31
($ in millions)
Sales
Operating profit
Depreciation and
amortization
Operating profit
as a % of sales
Depreciation and
amortization
as a % of sales
2007
$ 3,153.4
532.5
2006
$ 2,988.8
467.7
2005
$ 2,794.9
409.3
33
63.2
61.1
60.4
16.9%
15.7%
14.6%
2.0%
2.0%
2.2%
Components of Sales Growth
Industrial Technologies
Businesses in the Industrial Technologies segment manufacture
products and sub-systems that are typically incorporated
by customers and systems integrators into production and
packaging lines as well as incorporated by original equipment
2007 vs. 2006
2006 vs. 2005
Existing businesses
Acquisitions
Currency exchange rates
Total
1.5%
0.5%
3.5%
5.5%
6.0%
1.0%
0.5%
7.5%
2007 Compared To 2006
Price
increases contributed 1.5% of sales growth
compared to 2006 which impact is reflected in sales from
existing businesses.
Operating profit margin improvements in the segment’s existing
businesses contributed 85 basis points to the overall operating
margin improvement for 2007 as compared to 2006. This margin
improvement was driven in part by continued margin expansion
in the motion businesses reflecting pricing and productivity
initiatives as well as the impact of lower levels of lower-margin
United States Postal Service (USPS) sales in 2007 compared
to 2006 within the product identification business. In addition,
during 2007, the segment recorded a pre-tax gain of $12
million upon collection of indemnification proceeds related to
a lawsuit, which improved operating profit margins by 40 basis
points for 2007. These positive factors were partially offset by
new acquisitions, restructuring activities, spending for product
development and emerging market sales force initiatives, all of
which are expected to have a positive impact in 2008.
Overview of Businesses within Industrial
Technologies Segment
Motion. Sales in the Company’s motion businesses, representing
approximately 34% of segment sales in 2007, increased 2.5%
over 2006. Sales from existing businesses accounted for a
1.0% decrease in sales and currency translation accounted for
3.5% growth in sales during 2007. There were no acquisitions
in the business in 2007 or 2006.
During 2007, the motion business experienced sales growth
primarily in the elevator markets as a result of global conversions
to more energy efficient systems and new construction demand
in Asia. Demand in OEM applications in Europe also contributed
year-over-year sales growth. These growth drivers, however,
were more than offset by year-over-year sales declines
resulting from weakness in certain technology end markets as
well as declines in the miniature motors business reflecting
reduced customer demand.
Product Identification. The product identification busi-
nesses accounted for approximately 28% of segment
sales in 2007. Sales from the Company’s product iden-
tification businesses increased 3.5% in 2007 compared
to 2006. Sales from existing businesses accounted for a
1.0% decline while currency translation contributed 3.5%
to revenue growth and acquisitions contributed 1.0% to
revenue growth in 2007.
The 2007 decline in sales from existing operations resulted
from the business completing several large systems installation
projects with the USPS during 2006 which did not repeat in
2007. Sales for the business’ non-USPS marking products
grew at a mid-single digit rates during 2007 compared to 2006.
Strong equipment and after-market sales, particularly in China,
Latin America and Europe, were the primary drivers of this
growth facilitated by increased investments in the business’
sales force and new product launches in these regions.
Focused Niche Businesses. The segment’s niche businesses in
the aggregate experienced 10% sales growth in 2007 compared
to 2006. This growth was primarily driven by strong sales
growth from existing businesses in the Company’s aerospace
and defense businesses, partially offset by sales declines
in the Company’s sensors and controls business, reflecting
continued softness in the semi-conductor and electronic
assembly markets.
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
in 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 15.7% in 2006
compared to 14.6% in 2005. The overall improvement in operating
profit margins was driven primarily by additional leverage
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 structures 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 No. 123R which
required the Company to record approximately $14.5 million
of stock option compensation costs and reduced operating
34
profit margins by 45 basis points in 2006 compared with 2005.
Operating profit margin comparisons for 2006 compared to
2005 are also negatively impacted by 35 basis points related
to gains on sale of a business and the collection of a previously
reserved note receivable during 2005 and were positively
impacted by 65 basis points related to a fourth quarter 2005
loss from the settlement of patent infringement litigation not
repeating in 2006.
Tools & Components
The Tools & Components segment is one of the largest producers
and distributors of general purpose and specialty mechanics
hand tools. Other products manufactured by the businesses
in this segment include toolboxes and storage devices; diesel
engine retarders; wheel service equipment; drill chucks; and
custom-designed fasteners and components.
Tools & Components Selected Financial Data
For the Year Ended December 31
($ in millions)
Sales
Operating profit
Depreciation and
amortization
Operating profit
as a % of sales
Depreciation and
amortization
as a % of sales
2007
$ 1,336.6
175.6
2006
$ 1,350.8
194.1
2005
$ 1,294.5
199.3
20.8
21.4
22.8
13.1%
14.4%
15.4%
1.6%
1.6%
1.8%
Components of Sales Growth
2007 vs. 2006
2006 vs. 2005
35
Existing businesses
Product line divestiture
Currency exchange rates
Total
(0.5%)
(1.0%)
0.5%
(1.0%)
4.5%
0.0%
0.0%
4.5%
Overview of Businesses within Industrial
Technologies Segment
Motion. Sales in the Company’s motion businesses, representing
approximately 33% of segment sales in 2006, increased by 6%
over 2005. Sales from existing businesses accounted for 5%
growth; acquisitions accounted for 0.5% growth and currency
translation contributed 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
somewhat offset by softness in certain technology end markets.
The business also experienced continued growth in sales of its
linear products during 2006.
Product Identification. The product identification businesses
accounted for approximately 27% of segment sales in 2006.
Sales from the Company’s product identification businesses
increased 3.5% in 2006 compared to 2005. Existing businesses
provided 2.5% growth. Favorable currency impacts accounted
for 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.
Focused Niche Businesses. The segment’s niche businesses
in the aggregate experienced 11.0% 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.
2007 Compared To 2006
in same-store sales of hand tools at Sears/K-Mart continues to
Sales from existing businesses for 2007 reflect the impact of
certain regulatory requirements that became effective at the
beginning of 2007 which accelerated demand for the Company’s
engine retarder products in 2006 and have adversely impacted
demand in 2007. Price increases partially offset the decline
in sales and contributed approximately 2.5% of sales growth
compared to 2006. The impact of that increase is reflected in
sales from existing businesses.
Operating profit margins for the segment were 13.1% in 2007
compared to 14.4% in 2006. Costs associated with workforce
reductions and adjustments to production levels to match
demand in the engine retarder business decreased operating
profit margins by 85 basis in 2007 compared with 2006. Lower
sales volumes in the mechanics’ hand tool business with Sears/
K-Mart and increased lead costs in the wheel weight business
also had a negative impact on the 2007 operating margins. In
addition, operating profit margins were adversely impacted by
40 basis points as a result of expenses incurred in connection
with a fire in one of the business’ manufacturing facilities in
China and restructuring costs incurred primarily in the fourth
quarter of 2007 to close one facility and reduce headcount.
Overview of Businesses within the Tools &
Components Segment
Mechanics’ hand tools sales, representing approximately 70%
of segment sales in 2007, grew 1.0% in 2007 compared to 2006.
The segment’s Matco business grew slightly during 2007 as the
business benefited from recent product introductions and price
increases which offset declines in distributor average purchase
levels during 2007. The retail hand tool business experienced
strength in China and in its export business to Europe, as well
as certain of its retail channels. This performance, in large part,
was offset by a decline in sales to Sears/K-Mart, the retail
hand tools business’ largest customer. Year-over-year softness
impact adversely the business.
The segment’s niche businesses experienced mid-single digit
sales declines during 2007 as compared to 2006. The impact
of the regulatory issue noted above was partially offset by
improved sales performance in the segment’s wheel service
business during 2007 driven by price increases necessary to
recover increased lead costs.
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.
Operating profit margins for the segment were 14.4% in 2006
compared to 15.4% in 2005. Implementation of SFAS No. 123R
in the first quarter of 2006 reduced segment operating 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 ($3.9 million after taxes)
gain on the sale of real estate in 2005. The adverse impacts on
operating margins described above were offset somewhat by
the impact of leverage from higher sales levels, including the
pricing actions implemented in 2006, as well as the benefit of
restructuring actions taken in 2005.
36
Overview of Businesses within the Tools &
Components Segment
Mechanics’ hand tools sales, representing approximately
70% of segment sales, grew 5% in 2006 compared to 2005.
The sales growth was driven primarily by the group’s Matco
business which achieved high-single digit growth during 2006
driven by increases in both the number of distributors and their
average purchase levels. The retail mechanics’ hand tools
business also grew in the second half of 2006 compared to the
second half of 2005 as sell-through at Sears, a major customer
of the segment, improved from prior year levels. The business
continued to experience growth with its other retail customers
as well as expanding markets for the business’ products in
China. The segment’s niche businesses experienced mid-single
digit sales growth for 2006 compared to 2005 as strength in the
truck box and engine retarder businesses was partially offset
by weakness in the chuck business.
Gross Profit
For the Year Ended December 31
($ in millions)
Gross profit margins from continuing operations for 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. Increases in selling prices to offset some
of the increases in cost and surcharges related to steel and
other commodity 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 associated with the Sybron acquisition in the second
quarter of 2006, which further reduced gross margins for the
year ended December 31, 2006.
Operating Expenses
For the Year Ended December 31
($ in millions)
2007
2006
2005
Sales
$ 11,025.9
$ 9,466.1
$ 7,871.5
Selling, general and
Sales
Cost of sales
Gross profit
Gross profit margin
5,985.0
5,040.9
45.7%
5,269.0
4,197.1
44.3%
4,467.3
3,404.2
43.2%
2007
2006
2005
$ 11,025.9
$ 9,466.1
$ 7,871.5
37
The increase in gross profit margins from continuing operations
for 2007 as compared to 2006 resulted 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 and generally higher
gross profit margins in businesses recently acquired and
increases in selling prices. Gross profit margins also improved
due to lower-margin sales to United States Postal Service
in the product identification business comprising a smaller
proportion of sales during 2007 compared to 2006. The gross
margins for 2007 also benefited from the inclusion of a full year
of results from higher-margin Sybron business as compared to
2006 which only included seven months of Sybron results as a
result of Sybron acquisition in May 2006. The improvements
were partially offset by higher commodity costs incurred in
2007 for which full recovery in the form of price increases
dilutes reported margins.
administrative expenses
2,713.1
2,273.2
1,777.7
Research and
development expenses
601.4
440.0
374.3
SG&A as a % of sales
24.6%
24.0%
22.6%
R&D as a % of sales
5.5%
4.6%
4.8%
Selling, general and administrative expenses as a percentage
of sales increased 60 basis points during 2007 as compared
to 2006 levels. The year-over-year increases resulted from
(principally Sybron Dental
recently acquired businesses
and Vision) which generally have higher operating expense
structures, compared to the Company’s other businesses,
as well as increased investment in sales forces in emerging
markets. These increases were partially offset by operating
leverage from higher sales during 2007 as compared to 2006.
In addition, the recovery of certain previously written-off
indemnity receivable balances during 2007 favorably impacted
selling, general and administrative expenses as a percentage
of sales. Selling, general and administrative expenses as
a percentage of sales were higher in 2006 as compared to
2005 as a result of the higher operating expense structures of
businesses acquired during 2006 as well as the implementation
of SFAS No. 123R at the beginning of 2006 which required the
Company to record approximately $55.0 million in stock option
compensation costs.
Research and development expenses, consisting principally
of internal and contract engineering personnel costs, as a
percentage of sales, were approximately 90 basis points higher
in 2007 as compared to 2006. In 2007, the Company expensed
approximately $60.4 million of
in-process research and
development related to the Tektronix acquisition as compared
to approximately $6.5 million of in-process research and
development expensed in 2006 related to the Vision acquisition.
Newly acquired companies and their higher, relative research
and development cost structures also contributed to the year-
over-year increase. Research and development expenses as
a percentage of sales during 2006 were consistent with the
2005 level. The Company continues to invest in new product
development within all of its businesses, with particular
emphasis on the medical technologies, test and measurement,
environmental and product identification businesses.
Interest Costs And Financing Transactions
38
For a description of the Company’s outstanding indebtedness,
please refer to “–Liquidity and Capital Resources – Financing
Activities and Indebtedness” below.
Interest expense of $109.7 million in 2007 was approximately
$30.3 million higher than 2006. The increase is primarily
due to higher average debt levels during 2007, due to
borrowings incurred to fund the 2007 acquisitions of Tektronix
and ChemTreat and the 2006 acquisitions of Sybron and
Vision. Interest expense for 2006 was higher than 2005 by
approximately $34.9 million. The increase in interest expense
in 2006 compared to 2005 was also due to higher debt levels
during 2006 as compared to 2005, as a result of borrowings
incurred to fund the acquisitions of Sybron Dental and Vision.
Interest income of $6.1 million, $8.0 million and $14.7 million
was recognized in 2007, 2006 and 2005, respectively. Average
invested cash balances were lower in 2007 compared to 2006
due to employing cash balances to complete several acquisitions
in late 2006 and throughout 2007 as well as to repurchase
shares of Company common stock in 2007. In addition, lower
interest rates prevailing during 2007 contributed to the
decrease in interest income. Average invested cash balances
decreased during 2006 compared to 2005 due to employing
cash balances to complete several acquisitions in 2005 and
2006, to finance repurchases of the Company’s outstanding
common stock in the second half of 2005 and to repay the
previously outstanding Eurobonds in July 2005. In addition,
2005 interest income reflects the collection of $4.6 million of
interest on a note receivable which had not previously been
recorded due to collection risk.
Income Taxes
General
The Company’s effective tax rate can be affected by changes in
the mix of earnings in countries with differing statutory 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 previously 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 2007 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, 2007, the total
amount of earnings planned to be reinvested indefinitely outside
the United States was approximately $5.4 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 assessments are
determined or resolved. Additionally, the jurisdictions in which
the Company’s earnings and/or deductions are realized may
differ from current estimates.
Year-Over-Year Changes in Tax Provision
and Effective Tax Rate
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, on
January 1, 2007. As a result of the implementation of
Interpretation No. 48, the Company recognized a decrease
in the liability for unrecognized tax benefits of $63 million,
which was accounted for as an increase to the January 1,
2007 balance of retained earnings.
The Company’s effective tax rate related to continuing
operations for the years ended December 31, 2007, 2006 and
2005 was 25.8%, 22.4% and 27.3%, respectively.
The effective tax rate for 2007 of 25.8% reflects net discrete
tax benefits of approximately $21 million, or $0.07 per diluted
share. New tax legislation that was signed into law in several
taxing jurisdictions during 2007, most notably in Germany
and Denmark, reduced income tax rates for 2008 and future
periods which resulted in a reduction in the Company’s
deferred tax liabilities and a like reduction in 2007 income
tax expense as required under SFAS No. 109, Accounting for
Income Taxes. The lower statutory rates are expected to be
offset by other statutory changes in these jurisdictions, such
that the Company’s effective tax rate in future years will not
be materially reduced as a result of the legislation. Partially
offsetting the benefit from the above tax rate reduction was
the effect of establishing income tax reserves during the year
related to uncertain tax positions in various taxing jurisdiction,
net of the reduction of tax reserves associated with Sweden.
Refer to Note 13 in the Consolidated Financial Statements for
additional information.
The Company’s effective tax rate from continuing operations of
22.4% for 2006 was 4.9% lower than the effective tax rate for
2005. The effective tax rate for 2006 benefited by $69 million,
or $0.21 per diluted share, as a result of 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. 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 2008 is expected to be approximately 27%.
Inflation
Inflation did not significantly impact the Company’s overall
results of operations in either 2007 or 2006.
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 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 hypothetical,
immediate 100 basis-point increase in interest rates at
December 31, 2007, the fair value of the Company’s fixed-
rate long-term debt, excluding the LYONs, would decrease
by approximately $74 million. The LYONs have not been
included in this calculation as the value of the convertible debt
is primarily derived from the LYONs conversion feature. This
methodology has certain limitations, and these hypothetical
gains or losses would not be reflected in the Company’s results
of operations 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 principal amount of $100 million
39
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 “perfect” 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.
will continue to affect the reported amount of sales, profit, and
assets and liabilities in the Company’s consolidated financial
statements. The Eurobond Notes described below, as well as
the European component of the commercial paper program,
which as of December 31, 2007 had aggregate outstanding
borrowings in an amount equivalent to $969 million, provide
a natural hedge to a portion of the Company’s European net
asset position.
Credit Risk
Exchange Rate Risk
Although the Company has a U.S. dollar functional currency
for reporting purposes, it has manufacturing sites throughout
the world and a substantial portion of its sales are generated
in foreign currencies. Sales by subsidiaries operating outside
of the United States are translated into U.S. dollars using
exchange rates effective during the respective period.
As a result, the Company is exposed to movements in the
exchange rates of various currencies against the United
States dollar. 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 Company has generally accepted the exposure to exchange
rate movements without using derivative financial instruments
to manage this risk. Therefore, both positive and negative
movements in currency exchange rates against the U.S. dollar
Financial instruments that potentially subject the Company
to significant concentrations of credit risk consist of cash and
temporary 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 investments 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, concentrations 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.
40
Liquidity And Capital Resources
Overview of Cash Flows and Liquidity
For the Year Ended December 31
($ in millions)
Operating cash flows from continuing operations
Operating cash flows from discontinued operations
Net cash flows from operating activities
Purchases of property, plant and equipment
Cash paid for acquisitions
Cash paid for investment in acquisition target and
other marketable securities
Proceeds from sale of investment and divestitures
Other sources
Investing cash flows from continued operations
Investing cash flows from discontinued operations
Net cash used in investing activities
Proceeds from the issuance of common stock
Borrowings, net of repayments
Purchase of treasury stock
Payment of dividends
Net cash provided by (used in) financing activities
2007
$ 1,699.3
(53.5)
1,645.8
(162.1)
(3,576.6)
(23.2)
301.3
15.5
(3,445.1)
(0.7)
(3,445.8)
733.0
1,131.0
(117.5)
(34.3)
1,712.2
2006
$ 1,530.8
16.5
1,547.3
(136.4)
(2,656.1)
(84.1)
98.5
10.0
(2,768.1)
(1.3)
(2,769.4)
98.4
1,145.0
--
(24.6)
1,218.8
2005
$ 1,189.3
14.5
1,203.8
(119.7)
(885.1)
--
22.1
18.8
(963.9)
(1.5)
(965.4)
59.9
(292.2)
(257.7)
(21.6)
(511.6)
41
• Operating cash flow from continuing operations, a key source of the Company’s liquidity, increased $168.5 million, or approximately
11.0% as compared to 2006. Earnings growth contributed $104.8 million to the increase in operating cash flow from continuing
operations in 2007 compared to 2006, and non-cash stock compensation expense and increases in depreciation and amortization
also positively impacted cash flow. Operating working capital, which the Company defines as trade accounts receivable plus
inventory less accounts payable, was a net source of cash flow in 2007 despite higher sales levels as overall operating working
capital turns improved from the levels experienced during 2006. Operating working capital contributed $69 million to operating
cash flow during 2007 as compared to $31 million contributed to operating cash flow during 2006.
• As of December 31, 2007, the Company held $239.1 million of cash and cash equivalents.
• Acquisitions constituted the most significant use of cash in all periods presented. The Company acquired 12 companies and
product lines during 2007 and completed the acquisition of the remaining shares of Vision not owned as of December 31, 2006,
for total consideration of $3.6 billion in cash, including transaction costs and net of cash and debt acquired. The acquisition of
Tektronix in November 2007 for total consideration of approximately $2.8 billion, including transaction costs and net of cash
acquired, and the acquisition of ChemTreat in July 2007 for a cash purchase price of $425 million including transaction costs,
constituted the largest acquisitions during the period.
• During 2007, the Company completed the sale of its power quality business generating approximately $275 million of net
cash proceeds.
• The Company funded the purchase price of the Tektronix acquisition with proceeds from the issuance of commercial paper
borrowings and the net proceeds from the Company’s November 2007 common stock offering, and to a lesser extent from available
cash. Subsequent to the acquisition, the Company refinanced a portion of the commercial paper borrowings with the net proceeds
from the Company’s December 2007 offering of 5.625% Senior Notes due 2018. The Company financed the ChemTreat acquisition
primarily with proceeds from the issuance of commercial paper and to a lesser extent from available cash.
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 capital needs and the timing of payments
for items such as income taxes, pension funding decisions and
other items impact reported cash flows.
$162 million for 2007 increased $26 million from $136 million
during 2006, primarily due to capital spending relating to new
acquisitions 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 for increasing capacity, replacing equipment,
supporting new product development and improving information
technology systems. In 2008, the Company expects capital
spending to exceed $200 million, though actual expenditures
will ultimately depend on business conditions.
Operating cash flow from continuing operations, a key source
of the Company’s liquidity, was approximately $1.7 billion for
2007, an increase of $169 million, or approximately 11% as
compared to 2006. Earnings growth contributed $105 million
to the increase in operating cash flow in 2007 compared
to 2006. Operating cash flows during 2007 benefited from
increases in non-cash depreciation and amortization charges
of approximately $53 million compared to 2006. The increase
in depreciation and amortization is primarily related to
recent acquisitions. Also benefiting operating cash flows
during 2007 is $68 million of non-cash acquisition related
charges incurred primarily related to acquired in-process
research and development activities, acquired inventory
and acquired deferred revenue in connection with the
acquisition of Tektronix. Because this expense adversely
impacts net earnings but does not require the use of cash,
it positively impacts the comparison of operating cash flow
as a percentage of net earnings. Operating working capital
contributed approximately $38 million to the increase in
operating cash flow during 2007 as compared to 2006. The
increase in operating working capital is primarily a result of
improvements in the Company’s inventory turnover and days
payables outstanding in 2007. These improvements were
somewhat offset by an increase in income tax payments
related to continuing operations of approximately $74 million
during 2007 as compared to 2006.
Investing Activities
Cash flows relating to investing activities consist primarily of
cash used for acquisitions and capital expenditures and cash
flows from divestitures of businesses or assets. Net cash used
in investing activities related to continuing operations was $3.4
billion during 2007 compared to $2.8 billion of net cash used
in the comparable period of 2006. Gross capital spending of
Net cash used in investing activities related to continuing
operations was $2.8 billion in 2006 compared to approximately
$965 million in 2005. Gross capital spending increased $17
million in 2006 from 2005 levels to $138 million.
As discussed below, the Company completed several business
acquisitions and divestitures during 2007, 2006 and 2005.
All of the acquisitions during this period have resulted in the
recognition 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 6 to the accompanying Consolidated Financial Statements.
2007 Acquisitions and Divestiture
In November 2007, the Company acquired all of the outstanding
shares of Tektronix, Inc. for total cash consideration of
approximately $2.8 billion, including transaction costs and net
of cash and debt acquired. The Company funded the purchase
price of the Tektronix acquisition with proceeds from the
issuance of commercial paper borrowings and the Company’s
November 2007 common stock offering (described below),
and to a lesser extent from available cash. Subsequent to
the acquisition, the Company refinanced a portion of the
commercial paper borrowings with the proceeds from the
Company’s December 2007 offering of the 2018 Notes
(described below).
In July 2007, the Company acquired all of the outstanding
shares of ChemTreat for a cash purchase price of $425 million
including transaction costs. No cash was acquired in the
42
transaction. The Company financed the acquisition primarily
with proceeds from the issuance of commercial paper and to a
lesser extent from available cash.
assumed debt primarily with proceeds from the issuance of
commercial paper and to a lesser extent from available cash.
In addition, the Company acquired ten other companies or
product lines during 2007 for consideration of approximately
$273 million in cash, including transaction costs and net of
cash acquired. Each company acquired is a manufacturer and
assembler of instrumentation products, in market segments
such as test and measurement, dental technologies, product
identification, sensors and controls and environmental
instruments. These companies were all acquired
to
complement existing units of the Professional Instrumentation,
Medical Technologies or Industrial Technologies segments. The
aggregate annual sales of these ten acquired businesses at the
time of their respective acquisitions, in each case based on the
company’s revenues for its last completed fiscal year prior to
the acquisition, were $123 million.
In addition to the ten acquisitions noted above, as discussed
below, during the first quarter of 2007, the Company completed
the acquisition of the remaining shares of Vision not owned by
the Company as of December 31, 2006 for cash consideration
of approximately $96 million.
In July 2007, the Company completed the sale of its power
quality business generating approximately $275 million of net
cash proceeds. This business, which was part of the Industrial
Technologies segment and designs and manufactures power
quality and reliability products and services, had aggregate
annual revenues of approximately $130 million in 2006. The
Company used the proceeds from this sale for general corporate
purposes, including debt reduction and acquisitions.
2006 Acquisitions
In May 2006, the Company acquired all of the outstanding
shares of Sybron for total cash consideration of approximately
$2 billion, including transaction costs and net of $94 million
of cash acquired, and assumed approximately $182 million
of debt. Sybron is a leading manufacturer of a broad range
of products for the dental professional and had revenues of
approximately $650 million in its last completed fiscal year
prior to the acquisition. Substantially all of the assumed debt
was repaid or refinanced prior to December 31, 2006. Danaher
financed the acquisition of shares and the refinancing of the
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 cash purchase price of approximately $525
million, including transaction costs and net of $113 million
of cash acquired and assumed $1.5 million of debt. Of this
purchase price, $96 million was paid during 2007 to acquire the
remaining shares of Vision that the Company did not own as
of December 31, 2006 and for transaction costs. 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 $86 million in its last completed fiscal year prior to the
acquisition. The pairing of Vision with the Company’s existing
life science instrumentation business, Leica, has significantly
broadened the Company’s product offerings in the anatomical
pathology market and has expanded the sales and growth
opportunities for both the Leica and Vision businesses. The
Company believes that the pairing of Leica and Vision has
also created a broader base for the potential acquisition of
complementary businesses in the life sciences industry.
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 test and measurement, acute
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 Industrial Technologies segments. The
aggregate annual revenues of these nine acquired businesses,
at the time of their respective acquisitions, in each case based
on the acquired company’s revenues for its last completed fiscal
year prior to the acquisition, were approximately $140 million.
In the first half of 2006, the Company purchased and subse-
quently 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
Company a break-up fee of approximately $3 million. During
43
the second quarter of 2006 the Company recorded a pre-tax
gain of approximately $14 million ($8.9 million after-tax, or ap-
proximately $0.03 per diluted share) in connection with these
matters, net of related transaction costs, which is included in
“other expense (income), net” in the accompanying Consoli-
dated 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.
2005 Acquisitions
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
product identification businesses and had annual revenue of
approximately $93 million in 2004.
In August 2005, the Company acquired all of the outstanding
shares of German-based Leica Microsystems AG, for an
aggregate purchase price of €210 million in cash, including
transaction costs and net of cash acquired of €12 million and
the assumption and repayment at closing of €125 million of
outstanding 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
attributable 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.
In addition to Linx and Leica, the Company acquired eleven
smaller companies and product lines during 2005 for total
consideration 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 instru-
mentation products, in markets such as medical technologies,
test and measurement, sensors and controls, environmental,
product identification, aerospace and defense and motion.
These companies were all acquired to complement existing
units of the Professional Instrumentation, Medical Technolo-
gies or Industrial Technologies segments. The aggregate an-
nual revenues of these eleven acquired businesses at the time
of their respective acquisitions, in each case based on the
acquired company’s revenues for its last completed fiscal year
prior to the acquisition, 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. Net cash proceeds received on the sale are
included in “Proceeds from Divestitures” 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
million 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
interest income on the note due to uncertainties associated
with collection of the principal balance of the note and the
related interest. Cash proceeds from the collection of the
principal balance of $10 million are included in “Proceeds from
Divestitures” in the accompanying Consolidated Statement of
Cash Flows.
Disposals of fixed assets yielded approximately $19 million
of cash proceeds during 2005, primarily related to a sale of
a building.
Financing Activities and Indebtedness
Overview
Financing cash flows consist primarily of proceeds from the
issuance of commercial paper, common stock and notes,
repayments of indebtedness, repurchases of common stock
and payments of dividends to shareholders. Financing
activities provided cash of $1.7 billion during 2007 compared
to $1.2 billion of cash provided during 2006. The increase in
cash generated from financing activities was primarily due to:
commercial paper borrowings used to finance the acquisition of
44
ChemTreat and a portion of the acquisition of Tektronix; and the
proceeds from the November 2007 common stock offering and
the December 2007 offering of the 2018 Notes that were used
to finance the acquisition of Tektronix, in each case net of debt
repayments, amounts paid for repurchases of common stock
and dividends paid during 2007.
Total debt was $3,726 million at December 31, 2007 compared
to $2,434 million at December 31, 2006. The Company’s debt
financing as of December 31, 2007 consisted primarily of:
• $240 (€164 million) million of outstanding Euro
denominated commercial paper;
• $1,311 million of outstanding U.S. dollar denominated
commercial paper;
• $250 million aggregate principal amount of 6.1% notes due
2008 (subject to the interest rate swaps described below);
• $730 million (€500 million) aggregate principal
amount of 4.5% guaranteed Eurobond Notes due 2013
(“Eurobond Notes”);
• $500 million aggregate principal amount of 5.625% Senior
Notes due 2018;
• $606 million of zero coupon Liquid Yield Option Notes due
2021 (“LYONs”); and
• $89 million of other borrowings.
The Company does not have any rating downgrade triggers
that would accelerate the maturity of a material amount of
outstanding debt, except as follows. Under each of the Eurobond
Notes and the 2018 Notes, if the Company experiences a
change of control and a rating downgrade of a specified nature
within a specified period following the change of control, the
Company will be required to offer to repurchase the notes at
a price equal to 101% of the principal amount plus accrued
interest in the case of 2018 Notes, or the principal amount plus
accrued interest in the case of Eurobond Notes. A downgrade
in the Company’s credit rating would increase the cost of
borrowings under the Company’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 incurrence of secured debt and sale/leaseback
transactions. None of these covenants are considered restrictive
to the Company’s operations and as of December 31, 2007, the
Company was in compliance with all of its debt covenants.
Commercial Paper Program and Credit Facilities
The Company satisfies its short-term liquidity needs primarily
through issuances of U.S. dollar and Euro commercial paper.
Under the Company’s U.S. and Euro commercial paper
programs, the Company or a subsidiary of the Company,
as applicable, may issue and sell unsecured, short-term
promissory notes in aggregate principal amount not to
exceed $4.0 billion. Since the credit facilities described
below provide credit support for the program, the $2.5 billion
of availability under the credit facilities has the practical
effect of reducing from $4.0 billion to $2.5 billion the
maximum amount of commercial paper that the Company can
issue under the program. Commercial paper notes are sold
at a discount and have a maturity of not more than 90 days
from the date of issuance. Borrowings under the program are
available for general corporate purposes, including financing
acquisitions. The Company has classified $1.5 billion of the
borrowings under the commercial paper program as long-
term borrowings in the accompanying Consolidated Balance
Sheet as the Company has the intent and the ability, as
supported by the availability of the Credit Facility (described
below), to refinance these borrowings for at least one year
from the balance sheet date. The remaining commercial
paper borrowings are classified as a current obligation.
During 2007, the Company utilized its commercial paper program,
in part, to fund the acquisitions of ChemTreat and Tektronix.
Operating cash flow and the proceeds from the November 2007
common stock offering, in the case of Tektronix, were also
utilized to fund the acquisition. The proceeds from the December
2007 offering of the 2018 Notes were subsequently utilized
to reduce outstanding borrowings under the program. As of
December 31, 2007, $1,551 million was outstanding under the
Company’s global commercial paper program, including $1,311
million outstanding under the U.S. dollar commercial paper
program with a weighted average interest rate of 4.6% and
an average maturity of 12 days and $240 million outstanding
under the Euro-denominated commercial paper program (€164
million) with a weighted average interest rate of 5.1% and an
average maturity of 32 days.
Credit support for part of the commercial paper program is
provided by an unsecured $1.5 billion multicurrency revolving
credit facility (the “Credit Facility”) which expires on April 25,
2012. The Credit Facility can also be used for working capital
and other general corporate purposes. Interest is based on, at
45
the Company’s option, (1) a LIBOR-based formula is dependent
in part on the Company’s credit rating, or (2) a formula based on
Bank of America’s prime rate or on the Federal funds rate plus
50 basis points, or (3) the rate of interest bid by a particular
lender for a particular loan under the facility. The Credit Facility
requires the Company to maintain a consolidated leverage ratio
of 0.65 to 1.00 or less.
In addition, in connection with the financing of the Tektronix
acquisition in November 2007, the Company entered into
a $1.9 billion unsecured revolving bridge loan facility (the
“Bridge Facility”) which expires on November 11, 2008. The
Bridge Facility also provides credit support for the commercial
paper program and can also be used for working capital and
other general corporate purposes. Interest is based on, at
the Company’s option, either (1) a LIBOR-based formula that
is dependent in part on the Company’s credit rating, or (2) a
formula based on the prime rate as published in the Wall Street
Journal or on the Federal funds rate plus 50 basis points. The
Bridge Facility requires the Company to maintain a consolidated
leverage ratio of 0.65 to 1.00 or less, and is required to be
prepaid with the net cash proceeds of certain equity or debt
issuances by the Company or any of its subsidiaries.
Together with the Company’s pre-existing $1.5 billion credit
facility, the Bridge Facility increased the Company’s aggregate
credit facilities to $3.4 billion. In December 2007, the amount
of the Bridge Facility was reduced by $0.9 billion leaving the
amount of the Bridge Facility at $1.0 billion and the aggregate
amount of the Company’s credit facilities at $2.5 billion, in each
case as of December 31, 2007. There were no borrowings under
either the Credit Facility or the Bridge Facility during 2007.
Other Long-Term Indebtedness
In December 2007, the Company completed an underwritten
public offering of $500 million aggregate principal amount
of 5.625% senior notes due 2018. The net proceeds, after
expenses and the underwriters’ discount, were approximately
$493.4 million, which were used to repay a portion of the
commercial paper issued to finance the acquisition of Tektronix.
The Company may redeem the notes at any time prior to their
maturity at a redemption price equal to the greater of the
principal amount of the notes to be redeemed, or the sum of
the present values of the remaining scheduled payments of
principal and interest plus 25 basis points.
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,
after the deduction of underwriting commissions but prior
to the deduction of other issuance costs, were €496 million
($627 million) and were used to pay down a portion of the
Company’s outstanding commercial paper and for general
corporate purposes. The Company may redeem the notes upon
the occurrence of specified, adverse changes in tax laws or
interpretations under such laws, at a redemption price equal to
the principal amount of the notes to be redeemed.
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, 2007, the accreted
value of the outstanding LYONs was lower than the traded
market value of the underlying common stock issuable upon
conversion. The Company may redeem all or a portion of the
LYONs for cash at any time at scheduled redemption prices.
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 holders 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 contingent
interest to the holders of LYONs during any six month period
from January 23 to July 22 and from July 23 to January 22 if the
average market price of a LYON for a specified measurement
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 with respect to any quarterly
period is equal to the higher of either 0.0315% percent of the
bonds’ average market price during the specified measurement
period or the amount of the common stock dividend paid
46
during such quarterly period multiplied by the number of
shares issuable upon conversion of a LYON. The Company
paid approximately $1.2 million of contingent interest on the
LYONs for the year ended December 31, 2007. Except for the
contingent interest described above, the Company will not pay
interest on the LYONs prior to maturity.
The $250 million of 6.1% notes due 2008 mature October 15,
2008. 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, 2007, the net interest
rate on $100 million of the notes was 4.43% 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 instruments qualify as
“effective” or “perfect” hedges.
Shelf Registration Statement and
Common Stock Offering
The Company has a shelf registration statement on Form S-3 on
file with the SEC that registers an indeterminate amount of debt
securities, common stock, preferred stock, warrants, depositary
shares, purchase contracts and units for future issuance.
In November 2007, the Company completed an underwritten
public offering of 6.9 million shares of Danaher common
stock at a price to the public of $82.25 per share off the shelf
registration statement. The net proceeds, after expenses and
the underwriters’ discount, were approximately $550 million,
which were used to partially fund the acquisition of Tektronix.
In December 2007, the Company also issued the 5.625% Senior
Notes due 2018 off the shelf registration statement.
Stock Repurchase Program
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
privately 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
available for use in connection with the Company’s equity
compensation plans and for other corporate purposes.
During 2007, the Company repurchased 1.64 million shares of
Company common stock in open market transactions at a cost
of $117 million. These repurchases were funded from available
cash and from proceeds from the issuance of commercial
paper. During 2005, the Company repurchased 5 million
shares of Company common stock in open market transactions
at an aggregate cost of $258 million. The 2005 repurchases
were funded from available cash and from borrowings under
uncommitted lines of credit. At December 31, 2007, the
Company had approximately 3.4 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 proceeds from the
issuance of commercial paper.
Dividends
The Company increased its regular, quarterly dividend to $0.03
per share during the second quarter of 2007, and declared
a regular quarterly dividend of $0.03 per share payable on
January 25, 2008 to holders of record on December 28, 2007.
Aggregate cash payments for dividends during 2007 were
$34.3 million.
47
Cash and Cash Requirements
As of December 31, 2007, the Company held $239.1 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 generally
intends to use available cash and internally generated funds to
meet these cash requirements and may borrow under existing
commercial paper programs or credit facilities or access 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 centralized and intra-company financing is used to provide
working capital to the Company’s 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. Repatriation of some foreign balances is
restricted or prohibited by local laws. Where local restrictions
prevent an efficient intra-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 borrowings, or both.
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, 2007 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. The amounts presented in the table
below do not reflect $556 million of gross unrecognized tax
benefits, the timing of which is uncertain. Refer Note 13 to the
Consolidated Financial Statements for additional information
on unrecognized tax benefits.
48
($ in millions)
Debt & Leases:
Less Than
One Year
Total
1-3 Years
3-5 Years
More Than
5 Years
Long-Term Debt Obligations (a)(b)
$ 3,695.5
$ 329.5
$ 6.9
$ 1,505.8
$ 1,853.3
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 Long-Term Liabilities Reflected on the
Company’s Balance Sheet Under GAAP (e)
30.8
3,726.3
604.9
368.1
1.0
330.5
69.1
100.4
3.5
10.4
130.8
143.5
417.0
407.4
5.7
3.0
1,508.8
100.7
65.2
3.9
23.3
1,876.6
304.3
59.0
--
1,634.6
--
312.3
243.6
1,078.7
$ 6,750.9
$ 907.4
$ 602.7
$ 1,922.2
$ 3,318.6
Total
(a)
(b)
(c)
(d)
(e)
As described in Note 8 to the Consolidated Financial Statements
Amounts do not include interest payments. Interest on long-term debt and capital lease obligations is reflected in a separate
line in the table.
As described in Note 11 to the Consolidated Financial Statements
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.
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 arrangements and are largely based upon
historical experience.
49
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
($ in millions)
Standby Letters of Credit and
Performance Bonds
Guarantees
Contingent Acquisition Consideration
Total
Total Amounts
Committed
Less Than
One Year
1-3 Years
4-5 Years
More Than
5 Years
$ 208.9
60.6
43.8
$ 313.3
$ 48.0
$ 91.3
$ 45.9
35.7
1.0
4.8
39.8
1.2
3.0
$ 84.7
$ 135.9
$ 50.1
$ 23.7
18.9
--
$ 42.6
Standby letters of credit and performance bonds are generally
issued to secure the Company’s obligations under short-term
contracts to purchase raw materials and components for
manufacture and for performance under specific manufacturing
agreements. Guarantees are generally issued in connection
with certain transactions with vendors, suppliers, and financing
counterparties and governmental 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
three years pursuant to these agreements, or a maximum of
up to $43.8 million over the next three years depending on the
performance of the respective businesses during the specified
performance period.
Other Off-Balance-Sheet Arrangements
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,
warranties and indemnities because they relate to unknown
conditions. 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,
certain 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.
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
coverage and any such liability could exceed the amount of the
insurance coverage.
Except as described above, as of December 31, 2007
the Company has not entered into any off-balance sheet
financing arrangements and has no unconsolidated special
purpose entities.
Legal Proceedings
Please refer to Note 12 to the Consolidated Financial Statements
included in this Annual Report for information regarding certain
outstanding litigation matters.
In addition to the litigation matters noted under “Item 1.
Business – Regulatory Matters – Environmental, Health &
Safety”, the Company 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 involving employment matters
and commercial disputes. The Company may also become
subject to lawsuits as a result of past or future acquisitions
or as a result of liabilities retained from, or representations,
warranties or indemnities provided in connection with, divested
businesses. Some of these lawsuits include claims for punitive
and consequential as well as compensatory damages. While
the Company maintains workers compensation, property,
cargo, automobile, aviation, crime, fiduciary, product, general
liability, and directors’ and officers’ liability insurance (and has
acquired rights under similar policies in connection with certain
acquisitions) that it believes cover a portion of these claims,
this insurance may be insufficient or unavailable to cover such
losses. 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 unavailable to cover
such losses. Based upon the Company’s experience, current
information and applicable law, it does not believe that these
50
proceedings and claims will have a material adverse effect on
its cash flows, financial position, or results of operations.
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 most of its lines of insurance,
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.
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
financial condition and results of operations are based upon
the Company’s Consolidated Financial Statements, which
have been prepared in accordance with accounting principles
generally 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
circumstances, 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
are most critical to an understanding of its financial statements
because they inherently involve significant judgments and
uncertainties. For a detailed discussion on the application of
these and other accounting policies, refer to Note 1 in the
Company’s Consolidated Financial Statements.
Accounts receivable. The Company maintains allowances
for doubtful accounts for estimated losses resulting from
the inability of the Company’s customers to make required
payments. The Company estimates its anticipated losses from
doubtful accounts based on historical collection history as
well as by specifically reserving for known doubtful accounts.
Estimating losses from doubtful accounts is inherently uncertain
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 would adversely impact
the Company’s net earnings and financial condition.
Inventories. The Company records inventory at the lower of cost
or market value. 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 circumstances beyond the
Company’s control. As a result, such fluctuations can be difficult to
predict. If actual market conditions are less favorable than those
projected by management, the Company could be required to
reduce the value of its inventory, which would adversely impact
the Company’s net earnings and financial condition.
Acquired intangibles. The Company’s business acquisitions
typically result in goodwill and other intangible assets, which
affect the amount of future period amortization expense and
possible 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 impairment exists. Impairment testing must
take place more often if circumstances 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 data. There are inherent uncertainties related to
these factors and management’s judgment in applying 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.
51
The Company’s annual goodwill impairment analysis, which
was performed during the fourth quarter of 2007, did not result
in an impairment charge. The excess of the estimated fair value
over carrying value for each of the Company’s reporting units as
of September 30, 2007, the annual testing date, ranged from
approximately $11 million to approximately $2.3 billion. In order
to evaluate the sensitivity of the fair value calculations on the
goodwill impairment test, 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 a short fall of approximately
$10 million to an excess of approximately $2.1 billion for each of
the Company’s reporting units. The reporting unit that resulted
in a short fall of fair value as compared to carrying value based
on a 10% hypothetical change in fair value had $188 million of
recorded goodwill at the date of the impairment analysis.
Long-lived assets. The Company reviews its long-lived assets
for impairment whenever events or changes in circumstances
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 impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceeds their fair value. Judgments 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.
Purchase accounting. In connection with its acquisitions, 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
52
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 information 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 Company would be required to incur an expense, which
would adversely affect the net earnings. To the extent these
accruals are not utilized for the intended purpose, the excess
is recorded as a reduction of the purchase price, typically by
reducing recorded goodwill balances.
(which
includes product
Risk Insurance. 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 general
liability
liability). For domestic
workers’ compensation and general 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 consist of specific reserves
for individual claims and additional amounts expected for
development of these claims as well as for incurred but not
yet reported claims. The specific reserves for individual known
claims are quantified by third party administrator specialists
for workers’ compensation 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 statistical and
other factors. The Company believes the liability recorded
for such risk insurance reserves as of December 31, 2007 is
adequate, but due to judgments inherent in the reserve process
it is possible the ultimate costs will differ from this estimate.
If the risk insurance reserves established are inadequate,
the Company would be required to incur an expense equal
to the amount of the loss incurred in excess of the reserves,
which would adversely affect the Company’s net earnings.
and
remediation
Environmental. The Company has made a provision for
environmental
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 potential remediation liability for properties
currently or previously owned is probable and reasonably
estimable, 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 insurance recoveries as well as 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 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. Refer to Note 12 of the
Notes to the Consolidated Financial Statements for additional
information. If the environmental reserves established by the
Company are inadequate, the Company would be required
to incur an expense equal to the amount of the loss incurred
in excess of the reserves, which would adversely affect the
Company’s net earnings.
Contingent Liabilities. The Company 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
our 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 or as a result of liabilities
retained from, or representations, warranties or indemnities
provided in connection with, divested businesses. Some of
these lawsuits include claims for punitive and consequential
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 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 evidentiary 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 strategy. For a discussion of these contingencies,
including management’s judgment applied in the recognition
and measurement of specific liabilities, refer to Note 12 of the
Notes to Consolidated Financial Statements. If the reserves
established by the Company with respect to these contingent
liabilities are inadequate, the Company would be required
to incur an expense equal to the amount of the loss incurred
in excess of the reserves, which would adversely affect the
Company’s net earnings.
Share-Based Compensation. Effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R),
which requires the Company to measure the cost of employee
services received in exchange for all equity awards granted,
including stock options RSUs and restricted stock, based
on the fair market value of the award as of the grant date.
SFAS No. 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 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 No.
123R. Under the fair value recognition provisions of SFAS No.
53
123R, the Company recognizes equity-based compensation
expense net of an estimated forfeiture rate and recognizes
compensation cost for only those shares expected to vest on
a straight-line basis over the requisite service period of the
award. 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.
Determining the appropriate fair value model and calculating
the fair value of share-based payment awards require the input
of subjective assumptions, including the expected life of the
share-based payment awards and stock price volatility. The
assumptions used in calculating the fair value of share-based
payment awards represent management’s best estimates,
but these estimates involve inherent uncertainties and the
application of management judgment. As a result, if factors
change and we use different assumptions, our equity-based
compensation expense could be materially different in the
future. In addition, we are required to estimate the expected
forfeiture rate and recognize expense only for those shares
expected to vest. If our actual forfeiture rate is materially
different from our estimate, the equity-based compensation
expense could be significantly different from what we have
recorded in the current period.
Pension and Other Postretirement Benefits. Certain of the
Company’s employees and retired employees are covered
by defined benefit pension plans (pension plans) and certain
eligible retirees are provided health care and life insurance
benefits under postretirement benefit plans (postretirement
plans). The Company accounts for its pension and postretirement
plans in accordance with SFAS No. 87, Employers’ Accounting
for Pensions; SFAS No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions; and 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. 87 and SFAS No. 106 require
that the amounts the Company records, including the expense
or income, associated with the pension and postretirement
plans is computed using actuarial valuations.
Calculations of the amount of pension and other postretirement
benefits costs and obligations depend on the assumptions
used in the actuarial valuations. These include assumptions
the Company makes relating to financial market and other
economic conditions. Changes in key economic indicators can
result in changes in the assumptions used by the Company. The
assumptions used in the actuarial valuation 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
calculating 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 6.0% discount rate in
computing the amount of the minimum pension liability to be
recorded at December 31, 2007, which represents an increase
of 0.25% in the discount rate from December 31, 2006. For
non-U.S. plans, rates appropriate for each plan are determined
based on investment grade instruments with maturities
approximately equal to the average expected benefit payout
under the plan. A 25 basis point reduction in the discount
rate used for the plans would have increased the US and non-
US net obligation by $62 million ($40 million on an after tax
basis) from the amount recorded in the financial statements at
December 31, 2007.
For 2007, the expected long-term rate of return assumption
applicable to assets held in the United States plan was
estimated at 8.0% which is the same as the rate used in 2006.
This expected rate of return reflects the asset allocation of the
plan and the expected long-term returns on equity and debt
investments included in plan assets. The U.S. plan invests
between 60% and 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, 2007
was $13 million (or $8 million on an after-tax basis), compared
with $17 million (or $11 million on an after-tax basis) for this
plan in 2006. If the expected long-term rate of return on plan
assets was reduced by 0.5%, pension expense for 2007 would
have increased $3.0 million (or $2.0 million on an after-tax
basis). The Company made no contributions to the U.S. plan
in 2007 and is not statutorily required to make contributions
to the plan in 2008. 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.
54
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 0.75% to 7.5% for 2007 and
ranged from 2.5% to 6.5% for 2006.
The Company adopted the provisions of SFAS No. 158 effective
in the year ended December 31, 2006. For a summary of the
material provisions of SFAS No. 158, see “New Accounting
Standards.” The adoption of SFAS No. 158 in 2006 decreased
the Company’s minimum pension liability by $13.0 million
($9.1 million net of tax benefits) due to the recognition of
previously unrecognized, over-funded positions in certain
of the Company’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. As of December 31, 2007,
approximately $120 million ($81 million, net of tax benefits) of
aggregate unrecognized prior service credits and unrecognized
actuarial
in accumulated other
included
comprehensive income associated with the Company’s pension
plans. In addition, as of December 31, 2007, approximately $5.7
million ($3.9 million, net of tax) of aggregate unrecognized prior
service credits and unrecognized actuarial losses are included
in accumulated other comprehensive income associated with
the Company’s postretirement plans.
losses are
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 the Company’s retirement program, its primary
effect will be to change the minimum funding requirements for
plan years beginning in 2009. Based on initial projections, the
Act is expected to slightly increase the amount of our required
contributions in 2009.
New Accounting Standards
In December 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (SFAS No. 141R) and SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS No. 160”). SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS No. 141R also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. SFAS No.
160 clarifies the classification of noncontrolling interests in the
financial statements and the accounting for and reporting of
transactions between the reporting entity and holders of such
noncontrolling interests. SFAS No. 141R and SFAS No. 160
are effective for financial statements issued for fiscal years
beginning after December 15, 2008. Management is currently
evaluating the potential impact, if any, of the adoption of SFAS
No. 141R and SFAS No. 160 on the Company’s consolidated
financial position and results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements” (SFAS No. 157). SFAS No. 157 provides
guidance for using fair value to measure assets and liabilities.
It also responds to investors’ requests for expanded information
about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair
value and the effect of fair value measurements on earnings.
SFAS No. 157 applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value, and
does not expand the use of fair value in any new circumstances.
SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Management
is currently evaluating the effect that the adoption of SFAS No.
157 will have on the Company’s consolidated financial position
and results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities
— Including an amendment of FASB Statement No. 115”
(SFAS No. 159). SFAS No. 159 expands the use of fair value
accounting but does not affect existing standards that require
assets or liabilities to be carried at fair value. Under SFAS No.
159, a company may elect to use fair value to measure accounts
and loans receivable, available-for-sale and held-to-maturity
securities, equity method investments, accounts payable,
guarantees and issued debt. Other eligible items include
firm commitments for financial instruments that otherwise
would not be recognized at inception and non-cash warranty
obligations where a warrantor is permitted to pay a third party
to provide the warranty goods or services. If the use of fair
value is elected, any upfront costs and fees related to the item
must be recognized in earnings and cannot be deferred, such as
debt issuance costs. The fair value election is irrevocable and
generally made on an instrument-by-instrument basis, even if a
company has similar instruments that it elects not to measure
55
based on fair value. At the adoption date, unrealized gains
and losses on existing items for which fair value has been
elected are reported as a cumulative adjustment to beginning
retained earnings. Subsequent to the adoption of SFAS No.
159, changes in fair value are recognized in earnings. SFAS No.
159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. Management is currently
evaluating the effect that the adoption of SFAS No. 159 will
have on the Company’s consolidated financial position and
results of operations.
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. The Company adopted FIN 48 as of January
1, 2007, as required. As a result of the implementation, the
Company recognized a decrease of $63 million in the liability
for unrecognized tax benefits, which was accounted for as an
increase to the January 1, 2007 balance of retained 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).” This statement requires a company
to (a) recognize 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 postretirement 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 were effective and adopted by the Company as
of the fiscal year ended December 31, 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 unrecognized, 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 9 and 10 to the Consolidated
Financial Statements for additional information.
Effective January 1, 2006, the Company adopted Statements of
Financial Accounting Standards No. 123 (revised 2004), Share
Based Payment (SFAS No. 123 R), which requires the company
to measure the cost of employee services received in exchange
for all equity awards. See Note 15 to the Consolidated Financial
Statements for further discussion.
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.
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.”
56
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 completed the acquisition of Tektronix, Inc. on November 21, 2007. Management considers the transaction material
to Company’s consolidated financial statements from the date of the acquisition through December 31, 2007, and believes that the
internal controls and procedures of Tektronix have a material effect on the Company’s internal control over financial reporting. Due
to the close proximity of the completion date of the acquisition to the date of management’s assessment of the effectiveness of the
Company’s internal control over financial reporting, management excluded the Tektronix business from its assessment of internal
control over financial reporting. As of December 31, 2007, Tektronix, an indirect, wholly-owned subsidiary of the Company, accounted
for $3.3 billion and $2.8 billion of the Company’s total and net assets, respectively, and $133 million and $62 million of the Company’s
revenues and net loss, respectively, for the year then ended.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007
with the exception of the aforementioned Tektronix acquisition. In making this assessment, the Company’s management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.
Based on this assessment, management concluded that, as of December 31, 2007, 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 the effectiveness of the Company’s internal control over financial
reporting. This report dated February 19, 2008 appears on page 58 of this Form 10-K.
57
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
The Board of Directors and Shareholders of Danaher Corporation:
We have audited Danaher Corporation’s internal control over financial reporting as of December 31, 2007, 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 included in the accompanying Report of Management on Danaher
Corporation’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, 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 assurance 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.
As indicated in the accompanying Report of Management on Danaher Corporation’s Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of
Tektronix, Inc., which was acquired in 2007 and is included in the 2007 consolidated financial statements of Danaher Corporation and
constituted $3.3 billion and $2.8 billion of total and net assets, respectively, as of December 31, 2007 and $133 million and $62 million of
revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of Danaher Corporation
also did not include an evaluation of the internal control over financial reporting of Tektronix, Inc.
In our opinion, Danaher Corporation maintained, in all material respects, effective internal control over financial reporting as of December
31, 2007, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of Danaher Corporation as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2007 and our report dated February 19, 2008 expressed
an unqualified opinion thereon.
Ernst & Young LLP
Baltimore, Maryland
February 19, 2008
58
Report of Independent Registered Public Accounting Firm
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, 2007
and 2006, and the related consolidated statements of earnings, stockholders’ equity and cash flows for each of the three years
in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Danaher Corporation and subsidiaries at December 31, 2007 and 2006 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting
Standards No. 123R, Share Based Payments, 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. Also, as
discussed in Note 13 to the Consolidated Financial Statements, in 2007 the Company adopted FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.
59
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Danaher Corporation’s internal control over financial reporting as of December 31, 2007, 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 19, 2008 expressed an unqualified opinion thereon.
Ernst & Young LLP
Baltimore, Maryland
February 19, 2008
Danaher Corporation and Subsidiaries Consolidated Statements of Earnings
Year Ended December 31 ($ in thousands, except per share data)
2007
2006
2005
Sales
Operating costs and expenses:
Cost of sales
Selling, general and administrative expenses
Research and development expenses
Other (income) expense
Total operating expenses
Operating profit
Interest expense
Interest income
Earnings from continuing operations before income taxes
Income taxes
Earnings from continuing operations
Earnings from discontinued operations, net of income taxes
$ 11,025,917
$ 9,466,056
$ 7,871,498
5,985,022
2,713,097
601,424
(14,335)
9,285,208
1,740,709
(109,702)
6,092
1,637,099
(423,101)
1,213,998
155,906
5,268,996
2,273,227
440,002
(16,379)
7,965,846
1,500,210
(79,375)
8,008
1,428,843
(319,637)
1,109,206
12,823
4,467,303
1,777,717
374,307
4,596
6,623,923
1,247,575
(44,540)
14,707
1,217,742
(332,133)
885,609
12,191
Net earnings
$ 1,369,904
$ 1,122,029
$ 897,800
Earnings per share from continuing operations:
Basic
Diluted
Earnings per share from discontinued operations:
60
Basic
Diluted
Net earnings per share:
Basic
Diluted
Average common stock and common equivalent shares outstanding
(in thousands):
Basic
Diluted
See the accompanying Notes to the Consolidated Financial Statements.
$ 3.90
$ 3.72
$ 3.60
$ 3.44
$ 2.87
$ 2.72
$ 0.50
$ 0.47
$ 0.04
$ 0.04
$ 0.04
$ 0.04
$ 4.40
$ 4.19
$ 3.64
$ 3.48
$ 2.91
$ 2.76
311,225
329,459
307,984
325,251
308,905
327,983
Danaher Corporation and Subsidiaries Consolidated Balance Sheets
As of December 31 ($ and shares in thousands)
2007
2006
Assets
Current Assets:
Cash and equivalents
Trade accounts receivable, less allowance for
doubtful accounts of $108,781 and $102,369
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Other assets
Goodwill
Other intangible assets, net
Total assets
Liabilities and Stockholders’ Equity
Current Liabilities:
$ 239,108
$ 317,810
1,984,384
1,193,615
632,660
4,049,767
1,108,634
507,550
9,241,011
2,564,973
1,654,725
988,709
475,495
3,436,739
868,623
300,226
6,560,239
1,698,324
$ 17,471,935
$ 12,864,151
Notes payable and current portion of long-term debt
$ 330,480
$ 10,855
Trade accounts payable
Accrued expenses and other liabilities
Total current liabilities
Other liabilities
Long-term debt
Stockholders’ equity:
Common stock – $0.01 par value, 1 billion shares authorized; 352,608
and 341,223 issued; 317,984 and 308,242 outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
See the accompanying Notes to the Consolidated Financial Statements.
61
1,125,600
1,443,773
2,899,853
2,090,630
3,395,764
3,526
1,718,716
6,820,756
542,690
9,085,688
932,870
1,515,989
2,459,714
1,336,916
2,422,861
3,412
1,027,454
5,421,809
191,985
6,644,660
$ 17,471,935
$ 12,864,151
Danaher Corporation and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31 ($ in thousands)
Cash flows from operating activities:
Net earnings
Less: earnings from discontinued operations, net of tax
Net earnings from continuing operations
Non-cash items, net of the effect of discontinued operations:
Depreciation
Amortization
Stock compensation expense
Change in deferred income taxes
Change in trade accounts receivable, net
Change in inventories
Change in accounts payable
Change in prepaid expenses and other assets
Change in accrued expenses and other liabilities
Total operating cash flows from continuing operations
Total operating cash flows from discontinued operations
Net cash flows from operating activities
Cash flows from investing activities:
Payments for additions to property, plant and equipment
Proceeds from disposals of property, plant and equipment
Total investing cash flows from discontinued operations
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Payment of dividends
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
2007
2006
2005
$ 1,369,904
$ 1,122,029
$ 897,800
155,906
1,213,998
12,823
1,109,206
173,942
94,550
73,347
29,870
(72,555)
38,094
103,800
38,601
5,661
1,699,308
(53,533)
1,645,775
(162,071)
15,537
151,524
64,173
67,191
24,154
(48,255)
3,683
75,927
(14,962)
98,088
1,530,729
16,522
1,547,251
(136,411)
9,988
(722)
(1,295)
(3,445,759)
(2,769,370)
733,028
(34,275)
(117,486)
647,761
493,705
(10,563)
9,112
(78,702)
317,810
98,415
(24,589)
--
846,897
757,490
(459,372)
1,218,841
5,537
2,259
315,551
12,191
885,609
139,244
35,998
7,502
102,910
(66,534)
(20,611)
136,315
(38,258)
7,092
1,189,267
14,534
1,203,801
(119,733)
18,783
(885,083)
--
22,100
(963,933)
(1,473)
(965,406)
59,931
(21,553)
(257,696)
--
355,745
(647,987)
(511,560)
(20,399)
(293,564)
609,115
Net cash generated by (used in) financing activities
1,712,170
Effect of exchange rate changes on cash and equivalents
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.
$ 239,108
$ 317,810
$ 315,551
62
Cash paid for acquisitions
(3,576,562)
(2,656,035)
Cash paid for investment in acquisition target and
other marketable securities
Proceeds from sale of investment and divestitures
(23,219)
301,278
(84,102)
98,485
Total investing cash flows from continuing operations
(3,445,037)
(2,768,075)
Danaher Corporation and Subsidiaries Consolidated Statements of Stockholders’ Equity
($ and shares in thousands)
Shares
Amount
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
336,946
$ 3,369
$ 1,052,154
$ 3,448,122
$ 116,037
Balance, January 1, 2005
Net earnings for the year
Dividends declared
--
--
Common stock based award activity
1,601
Treasury stock purchase
(5 million shares)
Decrease from translation of
foreign financial statements
Minimum pension liability
(net of tax benefit of $3,579)
--
--
--
--
--
16
--
--
--
--
--
67,417
(257,696)
--
--
897,800
(21,553)
--
--
--
--
Comprehensive
Income
$ 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 based award activity
2,676
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)
--
--
--
--
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
63
Cumulative impact of change in
accounting for uncertainties in
income taxes (FIN 48 – see Note 13)
Net earnings for the year
Dividends declared
Common stock issuance
Common stock issued in connection
with LYONs’ conversion
Common stock based award activity
(including 310 thousand restricted
shares issued in connection with
Tektronix acquisition)
Treasury stock purchase
(1.6 million shares)
Increase from translation of foreign
financial statements
Unrecognized pension and
postretirement plan costs (net of tax
expense of $21,735)
--
--
--
6,900
49
--
--
--
69
1
--
--
--
63,318
1,369,904
(34,275)
550,433
2,487
4,436
44
255,828
--
--
--
--
--
--
(117,486)
--
--
--
--
--
--
--
--
--
$ 1,369,904
--
--
--
--
--
305,758
305,758
44,947
44,947
--
--
--
--
--
--
Balance, December 31, 2007
352,608
$ 3,526
$ 1,718,716
$ 6,820,756
$ 542,690
$ 1,720,609
See the accompanying Notes to the Consolidated Financial Statements.
(1) Business And Summary Of
Significant Accounting Policies:
Business. Danaher Corporation designs, manufactures and
markets professional, medical,
industrial and consumer
products 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
services that are used in connection with the performance
of their work. The Professional Instrumentation segment
encompasses two strategic businesses – test and measurement
and environmental. These businesses produce and sell desktop
and compact, professional test and measurement tools and
calibration equipment, a variety of video test and monitoring
products, network management solutions, network diagnostic
equipment and related services; water quality instrumentation
and consumables and ultraviolet disinfection systems; and
retail/commercial petroleum products and services, including
underground storage tank leak detection and vapor recovery
systems. The Medical Technologies segment
includes
businesses that design and manufacture acute care diagnostic
instruments, high-precision optical systems for the analysis of
microstructures; automated specimen preparation instruments
and related reagents; and pathology diagnostic tests, including
cancer diagnostics and a wide range of products used by
dental professionals. Businesses in the Industrial Technologies
segment manufacture products and sub-systems that are
typically incorporated by customers and systems integrators
into production and packaging 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 encompasses two strategic businesses,
motion and product identification, and two focused niche
businesses, aerospace and defense and sensors & controls.
These businesses produce and sell product identification
equipment and consumables; motion, position, speed,
temperature, and level instruments and sensing devices; 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.
Accounting Principles. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
intercompany balances and transactions have been eliminated
upon consolidation.
Use of Estimates. 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.
Inventory Valuation. Inventories include the costs of 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. Inventories
held outside the United States are primarily stated at the lower
of cost or market using the FIFO method.
Property, Plant and Equipment. Property, plant and equipment
are carried at cost. The provision for depreciation has been
computed principally by the straight-line method based on the
estimated useful lives (3 to 35 years) of the depreciable assets.
Other Assets. Other assets include principally noncurrent
trade receivables, other investments, and capitalized costs
associated with obtaining financings which are amortized over
the term of the related debt.
Fair Value of Financial Instruments. For cash and equivalents,
the carrying amount is a reasonable estimate of fair value. For
long-term debt, where quoted market prices are not available,
rates available for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
Goodwill and Other Intangible Assets. 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
64
arrangements that include a general right of refund relative to
the delivered element, performance of the undelivered element
is considered probable and substantially in the Company’s
control. While determining fair value and identifying separate
elements require judgment, generally fair value and the
separate elements are identifiable as those elements are also
sold unaccompanied by other elements.
Research and Development. The Company conducts research
and development activities for the purpose of developing new
products, enhancing the functionality, effectiveness, ease
of use and reliability of the Company’s existing products and
expanding the applications for which uses of the Company’s
products are appropriate. Research and development costs are
expensed as incurred.
Foreign Currency Translation. Exchange adjustments resulting
from foreign currency transactions are recognized in net
earnings, whereas adjustments resulting from the translation
of financial statements are reflected as a component of
accumulated other comprehensive income within stockholders’
equity. Net foreign currency transaction gains or losses are not
material in any of the years presented.
Cash and Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less at the date
of purchase to be cash equivalents.
65
Income Taxes. The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes.
Refer to Note 13 for additional information.
Income
Accumulated Other Comprehensive
(Loss). 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 ($
in millions).
goodwill balances ceased effective January 1, 2002. However,
amortization of certain identifiable intangible assets continues
over the estimated useful lives of the identified asset. Refer to
Notes 2 and 6 for additional information.
Shipping and Handling. Shipping and handling costs are
included as a component of cost of sales. Shipping and handling
costs billed to customers are included in sales.
Revenue Recognition. As described above, the Company derives
revenues primarily from the sale of professional, industrial,
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
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
acceptance 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
primarily of volume discounts and other short-term incentive
programs, 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, Accounting for Consideration Given to Vendor to
a Customer (including a Reseller of a Vendor’s Products). 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, Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts.
Revenues for contractual arrangements with multiple elements
are allocated pursuant to Emerging Issues Task Force Issue
00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. Revenues are recognized for the separate
elements when the product or services have value on a stand-
alone basis, fair value of the separate elements exists and, in
Foreign Currency
Translation
Adjustment
Minimum
Pension Liability
Adjustment
Unrecognized
Pension and Post-
Retirement Costs,
Net of Income Tax
Total Accumulated
Comprehensive
Income (Loss)
$ 223.2
$ (107.2)
$ --
$ 116.0
(216.5)
6.7
284.5
--
291.2
305.8
(8.8)
(116.0)
1.2
114.8
--
--
--
--
--
(99.2)
(99.2)
44.9
(225.3)
(109.3)
285.7
15.6
192.0
350.7
Balance, January 1, 2005
Current-period change
Balance, December 31, 2005
Current-period change
Adoption of SFAS No. 158
Balance, December 31, 2006
Current-period change
Balance, December 31, 2007
$ 597.0
$ --
$ (54.3)
$ 542.7
See Notes 9 and 10 for additional information related to
the minimum pension liability and unrecognized losses
and prior service cost components of accumulated other
comprehensive income.
other postretirement benefit plans and post-employment benefit
plans on the balance sheet. The Company adopted SFAS 158 as of
December 31, 2006. See Notes 9 & 10 for additional information.
New Accounting Pronouncements—See Note 18.
Accounting for Stock Options. As described in Note 15, effective
January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment (SFAS No. 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 No. 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 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. Awards granted after December 31, 2005 are valued
at fair value in accordance with the provisions of SFAS No. 123R
and generally recognized as an expense on a straight-line basis
over the service periods of each award.
Pension & Post Retirement Benefit Plans. On 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 recognition of the funded
status of each defined benefit pension plan, retiree health care and
(2) Acquisitions And Divestitures:
The Company has completed a number of acquisitions during the
years ended December 31, 2007, 2006 and 2005 that were either
a strategic fit with an existing Company business or were of such
a nature and size as to establish a new strategic line of business
for growth for the Company. All of these acquisitions 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
the complementary strategic fit and resulting synergies these
businesses 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
Company 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
66
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 related to redundant facilities; employee/personnel
data related to redundant functions; product line integration
and rationalization information; management capabilities; and
information systems compatibilities. The only items considered
for subsequent adjustment are items identified as of the
acquisition date. The Company has reflected the impact of any
significant pre-acquisition contingencies (as contemplated by
SFAS No. 38, Accounting for Preacquisition Contingencies of
Purchased Enterprises) related to its 2006 acquisitions in the final
purchase price allocation for these acquisitions. The Company
is continuing to evaluate certain pre-acquisition contingencies
associated with certain of its 2007 acquisitions and will make
appropriate adjustments to the purchase price allocation prior to
the one-year anniversary of the acquisition, as required.
The following briefly describes the Company’s acquisition and
divestiture activity for the three years ended December 31, 2007.
In November 2007, the Company acquired Tektronix, Inc.
(Tektronix) for a cash purchase price of approximately $2.8
billion including transaction costs and net of cash and debt
acquired. The Company initially financed the acquisition of
Tektronix through the issuance of commercial paper and
available cash (including proceeds from the underwritten
public offering of 6.9 million shares of Danaher common
stock completed on November 2, 2007 – refer to Note 15).
Subsequent to the acquisition, the Company issued $500
million of 5.625% senior notes due 2018 in an underwritten
public offering (refer to Note 8) and used the net proceeds
from this offering to repay a portion of the commercial
paper issued to finance the Tektronix acquisition. Tektronix
is a leading supplier of test, measurement, and monitoring
products, solutions and services for the communications,
computer, consumer electronics, and education industries –
as well as military/aerospace, semiconductor, and a broad
range of other industries worldwide and had revenues of
$1.1 billion in its most recent completed fiscal year prior to
the acquisition. Tektronix is part of the Company’s test and
measurement business and its results are reported within
the Professional Instrumentation segment. The Company
recorded a preliminary estimate of goodwill of $1.8 billion
related to the acquisition of Tektronix which arose primarily
due to the strategic fit of Tektronix with existing operations,
the worldwide leadership position of Tektronix in its served
markets and the earnings growth potential of this business. In
addition, the Company allocated $60.4 million of the purchase
price to in-process research and development reflecting the
estimated fair value of this acquired intangible asset. This
amount was immediately expensed in accordance with the
provisions of SFAS No. 141, Business Combinations.
In July 2007, the Company acquired all of the outstanding
shares of ChemTreat, Inc. (ChemTreat) for a cash purchase
price of $425 million including transaction costs. No cash
was acquired in the transaction. The Company financed the
acquisition primarily with proceeds from the issuance of
commercial paper and to a lesser extent from available cash.
ChemTreat is a leading provider of industrial water treatment
products and services, and had annual revenues of $200 million
in its most recent completed fiscal year prior to the acquisition.
ChemTreat is part of the Company’s environmental business and
its results are reported within the Professional Instrumentation
segment. ChemTreat is expected to provide additional sales and
earnings growth opportunities for the Company both through
the growth of existing products and services and through
the potential acquisition of complementary businesses. The
Company recorded a preliminary estimate of goodwill of $329
million related to the acquisition of ChemTreat which arose
primarily due to the expected revenue and earnings growth of
this business.
In addition to completing the acquisitions of Tektronix and
ChemTreat, the Company acquired ten other companies or
product lines during 2007. Total consideration for these ten
acquisitions was $273 million in cash, including transaction
costs and net of cash acquired. Each company acquired is a
manufacturer and assembler of instrumentation products, in
market segments such as test and measurement, dental tech-
nologies, product identification, sensors and controls and envi-
ronmental instruments. These companies were all acquired to
complement existing units of the Professional Instrumentation,
Medical Technologies or Industrial Technologies segments. The
aggregate annual sales of these ten acquired businesses at the
time of their respective acquisitions, in each case based on the
company’s revenues for its last completed fiscal year prior to
the acquisition, were $123 million. The Company has recorded
a preliminary estimate of goodwill related to these acquisitions
of $174 million reflecting the strategic fit and revenue and earn-
ings growth potential of these businesses.
67
In the first quarter of 2007 and the last quarter of 2006, the
Company acquired all of the outstanding shares of Vision for
an aggregate cash purchase price of $525 million, including
transaction costs and net of $113 million of cash acquired,
and assumed debt of $1.5 million. Of this purchase price,
$96 million was paid during 2007 to acquire the remaining
shares of Vision that the Company did not own as of
December 31, 2006 and for transaction costs. 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 $86 million in its most recent completed fiscal
year prior to the acquisition. The Vision acquisition resulted
in the recognition of goodwill of $432 million, of which $76
million was recorded in 2007. Goodwill associated with this
acquisition primarily relates to Vision’s future revenue growth
and earnings potential.
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 goodwill
of $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.
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 environmental
instrumentation, medical equipment or industrial products, in
markets such as test and measurement, acute 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 Industrial Technologies segments. The Company recorded an
aggregate of $130 million of goodwill related to these acquired
businesses. The aggregated annual sales of these nine acquired
businesses at the dates of their respective acquisitions, in
each case based on the acquired company’s revenues for
its last completed fiscal year prior to the acquisition were
approximately $140 million.
In January 2006, the Company commenced an all cash
tender offer for all of the outstanding ordinary shares of First
Technology plc, a U.K. - based public company. In connection
with the offer, the Company acquired an aggregate of 19.5%
of First Technology’s issued share capital for $84 million. A
competing bidder subsequently made an offer that surpassed
the Company’s bid, and as a result the Company allowed its
offer for First Technology to lapse. The Company tendered
its shares into the other bidder’s offer and on April 7, 2006
received proceeds of $98 million from the sale of these shares,
in addition to a $3 million break-up fee paid by First Technology
to the Company. The Company recorded a pre-tax gain of $14
million ($8.9 million after-tax, or $0.03 per diluted share) upon
the sale of these securities including the related break-up fee,
net of related transaction costs during the year ended December
31, 2006, which is included in “other (income) expense” in the
accompanying Statement of Earnings.
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
product identification businesses and had annual revenue of
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 outstanding
shares of German-based Leica Microsystems AG, for an
aggregate purchase price of €210 million in cash, including
transaction costs and net of cash acquired of €12 million and
the assumption and repayment at closing of €125 million
outstanding 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
68
$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
attributable to the semiconductor business that has been
divested, as described below). The Leica acquisition resulted in
the recognition 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 historically
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. Operating losses for
this business for the period from acquisition to disposition
totaled approximately $1.3 million and are reflected in “Other
expense (income), net” in the accompanying Consolidated
Statements of Earnings.
In addition to Linx and Leica, the Company acquired 11
smaller companies and product lines during 2005 for total
consideration 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
in markets such as medical
instrumentation products,
technologies, test and measurement, 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, in each case based on the acquired
company’s revenues for its last completed fiscal year prior to
the acquisition, 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
accompanying 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
million 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
interest 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 addition, during the second quarter of 2005 the Company
recorded a pre-tax gain of $5.3 million related to collection of
the note balance 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
Statements of Cash Flows.
Disposals 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 $5.3 million in
2005 which was included as a component of “Other expense
(income), net” in the accompanying Consolidated Statements
of Earnings.
69
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all
acquisitions consummated during 2007, 2006, and 2005 and the individually significant acquisitions discussed above ($ in thousands):
Overall
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Other intangible assets, primarily customer
relationships, trade names and patents
In-process research and development
Refundable escrowed purchase price
Accounts payable
Other assets and liabilities, net
Assumed debt
Net cash consideration
2007
2006
2005
$ 200,199
$ 143,441
$ 171,978
207,336
202,203
136,855
116,388
2,455,473
2,009,826
138,626
77,088
650,261
884,263
60,400
48,504
(57,617)
(420,418)
(3,781)
865,449
172,362
6,500
--
(50,057)
(389,200)
(183,167)
--
--
(65,706)
(245,162)
(14,364)
$ 3,576,562
$ 2,656,035
$ 885,083
Significant 2007 Acquisitions
Tektronix
ChemTreat
All Others
Total
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
70
Other intangible assets, primarily customer
relationships, trade names and patents
In-process research and development
Refundable escrowed purchase price
Accounts payable
Other assets and liabilities, net
Assumed debt
Net cash consideration
$ 149,315
$ 33,982
$ 16,902
$ 200,199
181,753
185,567
1,874,578
720,000
60,400
48,504
(35,919)
(401,308)
--
6,541
10,655
330,847
72,000
--
--
(11,468)
(17,891)
--
19,042
5,981
250,048
92,263
--
--
(10,230)
(1,219)
(3,781)
207,336
202,203
2,455,473
884,263
60,400
48,504
(57,617)
(420,418)
(3,781)
$ 2,782,890
$ 424,666
$ 369,006
$ 3,576,562
Significant 2006 Acquisitions
Sybron Dental
Vision
All Others
Total
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Other intangible assets, primarily customer
relationships, trade names and patents
In-process research and development
Accounts payable
Other assets and liabilities, net
Assumed debt
Net cash consideration
$ 103,335
$ 24,165
$ 15,941
$ 143,441
108,777
91,769
1,523,348
686,900
--
(31,744)
(286,090)
(181,671)
24,709
20,703
356,967
102,003
6,500
(8,816)
(96,189)
(1,496)
3,369
3,916
136,855
116,388
129,511
2,009,826
76,546
865,449
--
(9,497)
(6,921)
--
6,500
(50,057)
(389,200)
(183,167)
$ 2,014,624
$ 428,546
$ 212,865
$ 2,656,035
Significant 2005 Acquisitions
Leica
Linx
All Others
Total
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
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
actually would have been achieved had the acquisitions been
consummated as of that time (unaudited, $ in thousands except
per share amounts):
2007
2006
Net sales
$ 12,155,806
$ 11,316,462
Net earnings from
continuing operations
$ 1,230,134
$ 1,112,369
Diluted earnings
per share from
continuing operations
$ 3.70
$ 3.38
$ 123,064
$ 17,094
$ 31,820
$ 171,978
105,454
56,239
331,806
85,592
(40,358)
(226,912)
(5,503)
8,437
8,498
96,480
47,188
(7,430)
600
--
24,735
12,351
221,975
39,582
(17,918)
(18,850)
(8,861)
138,626
77,088
650,261
172,362
(65,706)
(245,162)
(14,364)
$ 429,382
$ 170,867
$ 284,834
$ 885,083
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
primarily to personnel reductions and facility closures or
restructurings, anticipated at the date of acquisition, in
accordance with Emerging Issues Task Force (EITF) Issue No.
95-3, “Recognition of Liabilities in Connection with a Purchase
Business Combination.” 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 Company is still finalizing its restructuring plans
with respect to certain of its 2007 acquisitions, particularly the
Tektronix acquisition, and will adjust current accrual levels to
reflect such restructuring plans as such plans are finalized.
71
Accrued liabilities associated with these exit activities include the following ($ in thousands, except headcount):
Balance, January 1, 2005
Headcount / accruals related to 2005 acquisitions
Adjustments to previously provided estimates
Headcount reductions / costs incurred in 2005
Balance, December 31, 2005
Headcount / accruals related to 2006 acquisitions
Adjustments to previously provided estimates
Headcount reductions / costs incurred in 2006
Balance, December 31, 2006
Headcount / accruals related to 2007 acquisitions
Adjustments to previously provided estimates
Headcount reductions / costs incurred in 2007
Balance, December 31, 2007
Involuntary Employee Termination Benefits
Headcount
563
820
204
(891)
696
201
(150)
(282)
465
61
(133)
(64)
329
Dollars
$ 35,105
24,346
(4,505)
(27,058)
27,888
14,824
(1,069)
(17,228)
24,415
1,181
(2,224)
(14,068)
$ 9,304
Facility Closure
and Restructuring
$ 33,608
14,341
(7,407)
(17,964)
22,578
6,820
858
(8,308)
21,948
521
288
(9,462)
$ 13,295
72
The adjustments to previously provided reserves reflect
finalization of the restructuring plans. All adjustments to
the previously provided reserves resulted in adjustments to
goodwill in accordance with EITF 95-3. Involuntary employee
termination benefits are presented as a component of the
Company’s compensation and benefits accrual included in
accrued expenses in the accompanying balance sheet. Facility
closure and restructuring costs are reflected in other accrued
expenses. Refer to Note 7.
(3) Discontinued Operations:
In July 2007, the Company completed the sale of its power
quality business for a sale price of $275 million in cash, net
of transaction costs, and recorded an after-tax gain of $150
million ($0.45 per diluted share). The power quality business
designs, makes and sells power quality and reliability products
and services, and prior to the sale was part of the Company’s
Industrial Technologies segment. The Company has reported
the power quality business as a discontinued operation in this
Form 10-K in accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. Accordingly,
the results of operations for all periods presented have
been reclassified to reflect the power quality business as a
discontinued operation. The assets and liabilities of the power
quality business have been reclassified as held for sale within
other current assets and other current liabilities at December
31, 2006. The Company allocated a portion of the consolidated
interest expense to discontinued operations in accordance with
EITF 87-24, Allocation of Interest to Discontinued Operations.
The key components of income from discontinued operations related to the power quality business for the years ended December
31 were as follows ($ in thousands):
Net sales
Operating expense
Allocated interest expense
Earnings before taxes
Income taxes
Earnings from discontinued operations
Gain on sale, net of $61,369 of related income taxes
Earnings from discontinued operations, net of income taxes
2007
$ 81,141
72,239
351
8,551
(2,279)
6,272
149,634
$ 155,906
2006
$ 130,348
112,565
454
17,329
(4,506)
12,823
--
2005
$ 113,206
96,113
393
16,700
(4,509)
12,191
--
$ 12,823
$ 12,191
The key components of assets and liabilities of discontinued
operations related to the power quality businesses which are
included in other current assets and other current liabilities in
the balance sheet consisted of the following ($ in thousands):
(5) Property, Plant And Equipment:
The classes of property, plant and equipment are summarized
as follows ($ in thousands):
Trade accounts receivable, net
Inventory
Property, plant and equipment,
net of accumulated depreciation
Goodwill
Other assets
Total assets
Trade accounts payable
Accrued expenses and other liabilities
Total liabilities
December 31, 2006
$ 20,245
16,651
5,745
35,884
866
$ 79,391
$ 19,467
8,020
$ 27,487
(4) Inventory:
The classes of inventory are summarized as follows
($ in thousands):
December 31, 2007
December 31, 2006
Finished goods
$ 547,742
$ 429,740
Work in process
Raw material
195,332
450,541
182,809
376,160
$ 1,193,615
$ 988,709
If the first-in, first-out (FIFO) method had been used for
inventories valued at LIFO cost, such inventories would have
been $18 million and $11 million higher at December 31, 2007
and 2006, respectively.
December 31, 2007 December 31, 2006
Land and
improvements
$ 105,096
$ 73,795
Buildings
Machinery and
equipment
Less accumulated
depreciation
679,575
546,469
1,726,426
2,511,097
1,515,724
2,135,988
(1,402,463)
(1,267,365)
$ 1,108,634
$ 868,623
(6) Goodwill & Other Intangible Assets:
As discussed in Note 2, goodwill arises from the excess of
the purchase price for acquired businesses exceeding the fair
value of tangible and intangible assets acquired. Management
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 impairment, management relies on a number of
factors including operating results, business plans, economic
projections, anticipated future cash flows, and transactions and
market place data. The Company’s annual impairment test was
performed in the fourth quarters of 2007, 2006 and 2005 and
no impairment was identified. There are inherent uncertainties
related to these factors and management’s judgment in applying
them to the analysis of goodwill impairment which may affect
the carrying value of goodwill.
73
The following table shows the rollforward of goodwill reflected
in the financial statements resulting from the Company’s
acquisition activities for 2005, 2006, and 2007 ($ in millions).
The carrying value of goodwill by segment is summarized as
follows ($ in millions):
Balance January 1, 2005
$ 3,934
Segment
December
31, 2007
December
31, 2006
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
Attributable to 2007 acquisitions
Adjustments due to finalization of purchase
price allocations
Effect of foreign currency translation
Balance December 31, 2007
650
(1)
(5)
(139)
$ 4,439
2,010
(38)
149
$ 6,560
2,455
(12)
238
$ 9,241
Professional Instrumentation
$ 3,797
$ 1,455
Medical Technologies
Industrial Technologies
Tools & Components
3,244
2,006
194
2,924
1,987
194
$ 9,241
$ 6,560
Goodwill of $36 million associated with the discontinued
power quality business (refer to Note 3) was classified as other
assets in the consolidated balance sheet as of December 31,
2006 and prior period information has been reclassified to
reflect this change.
Intangible assets are amortized over their legal or estimated
useful life. The following summarizes the gross carrying value
and accumulated amortization for each major category of
intangible asset ($ in thousands):
74
December 31, 2007
December 31, 2006
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Finite – Lived Intangibles
Patents & technology
$ 460,976
$ (84,669)
$ 252,180
$ (57,434)
Other intangibles (primarily
customer relationships)
Total finite – lived intangibles
Indefinite – Lived Intangibles
Trademarks & trade names
1,268,820
1,729,796
1,104,959
$ 2,834,755
(185,113)
(269,782)
877,452
1,129,632
(108,833)
(166,267)
--
734,959
--
$ (269,782)
$ 1,864,591
$ (166,267)
Total intangible amortization expense in 2007, 2006 and 2005 was $95 million, $64 million and $36 million, respectively. The
estimated amortization expense for year ending December 31, 2008 is $140 million, before amounts associated with 2008
acquisitions, if any.
(7) Accrued Expenses And Other Liabilities:
Accrued expenses and other liabilities include the following ($ in thousands):
December 31, 2007
December 31, 2006
Current
Non-Current
Current
Non-Current
Compensation and benefits
$ 530,949
$ 525,966
$ 463,643
$ 498,248
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
88,787
13,100
47,537
237,458
250,393
98,200
177,349
70,184
115,200
79,299
1,261,233
15,085
12,500
11,163
81,640
10,500
46,330
437,272
160,986
82,878
232,740
66,158
99,500
74,812
564,370
--
14,500
19,328
$ 1,443,773
$ 2,090,630
$ 1,515,989
$ 1,336,916
Approximately $209 million of accrued expenses and other liabilities were guaranteed by standby letters of credit and
performance bonds as of December 31, 2007. Refer to Note 13 for further discussion of the Company’s income tax
obligations.
(8) Financing:
The components of the Company’s debt as of December 31, 2007 and 2006 were as follows ($ in thousands):
Euro-denominated commercial paper (€164 million)
U.S. dollar-denominated commercial paper
4.5% guaranteed Eurobond Notes due 2013 (€500 million)
6.1% notes due 2008
Zero-coupon Liquid Yield Option Notes due 2021 (LYONs)
5.625% notes due 2018
Other
Less – currently payable
December 31, 2007
December 31, 2006
$ 239,715
$ 786,762
75
1,311,211
729,600
250,000
605,938
500,000
89,780
3,726,244
330,480
79,976
660,150
250,000
594,241
--
62,587
2,433,716
10,855
$ 3,395,764
$ 2,422,861
The Company satisfies its short-term liquidity needs primarily
through issuances of U.S. dollar and Euro commercial paper.
Under the Company’s U.S. and Euro commercial paper programs,
the Company or a subsidiary of the Company, as applicable,
may issue and sell unsecured, short-term promissory notes in
aggregate principal amount not to exceed $4.0 billion. Since
the credit facilities described below provide credit support for
the program, the $2.5 billion of availability under the credit
facilities has the practical effect of reducing from $4.0 billion
to $2.5 billion the maximum amount of commercial paper that
the Company can issue under the program. Commercial paper
notes are sold at a discount and have a maturity of not more
than 90 days from the date of issuance. Borrowings under the
program are available for general corporate purposes, including
financing acquisitions.
During 2007, the Company utilized its commercial paper
program, in part, to fund the acquisitions of ChemTreat and
Tektronix. Operating cash flow and proceeds from the November
2007 underwritten common stock offering (refer to Note 15), in
the case of Tektronix, were also utilized to fund the acquisitions.
In December 2007, the proceeds from the offering of the 2018
Notes (described below) were used to reduce outstanding
borrowings under the commercial paper program. As of
December 31, 2007, U.S. dollar commercial paper borrowings
had a weighted average interest rate of 4.6% and an average
maturity of 12 days and Euro-denominated commercial paper
borrowings had a weighted average interest rate of 5.1% and
an average maturity of 32 days.
Credit support for part of the commercial paper program is
provided by an unsecured $1.5 billion multicurrency revolving
credit facility (the “Credit Facility”) which expires on April 25,
2012. The Credit Facility can also be used for working capital and
other general corporate purposes. Interest is based on, at the
Company’s option, (1) a LIBOR-based formula that is dependent
in part on the Company’s credit rating, or (2) a formula based on
Bank of America’s prime rate or on the Federal funds rate plus
50 basis points, or (3) the rate of interest bid by a particular
lender for a particular loan under the facility. The Credit Facility
requires the Company to maintain a consolidated leverage ratio
of 0.65 to 1.00 or less.
facility (the “Bridge Facility”) which expires on November 11,
2008. The Bridge Facility also provides credit support for the
commercial paper program and can also be used for working
capital and other general corporate purposes. Interest is based
on, at the Company’s option, either (1) a LIBOR-based formula
that is dependent in part on the Company’s credit rating, or (2) a
formula based on the prime rate as published in the Wall Street
Journal or on the Federal funds rate plus 50 basis points. The
Bridge Facility requires the Company to maintain a consolidated
leverage ratio of 0.65 to 1.00 or less, and is required to be
prepaid with the net cash proceeds of certain equity or debt
issuances by the Company or any of its subsidiaries.
Together with the Company’s pre-existing $1.5 billion credit
facility, the Bridge Facility temporarily increased the Company’s
aggregate credit facilities to $3.4 billion. In December 2007,
the amount of the Bridge Facility was reduced by $0.9 billion
leaving the amount of the Bridge Facility at $1.0 billion and
the aggregate amount of the Company’s credit facilities at $2.5
billion, in each case as of December 31, 2007. There were no
borrowings under either the Credit Facility or the Bridge Facility
during 2007.
The Company has classified $1.5 billion of the borrowings under
the commercial paper program as long-term borrowings in the
accompanying Consolidated Balance Sheet as the Company
has the intent and the ability, as supported by the availability
of the Credit Facility, to refinance these borrowings for at least
one year from the balance sheet date.
In December 2007, the Company completed an underwritten
public offering of $500 million aggregate principal amount of
5.625% senior notes due 2018 (“2018 Senior Notes”). The net
proceeds, after expenses and the underwriters’ discount, were
approximately $493 million, which were used to repay a portion
of the commercial paper issued to finance the acquisition of
Tektronix. The Company may redeem the notes at any time prior
to their maturity at a redemption price equal to the greater of
the principal amount of the notes to be redeemed, or the sum
of the present values of the remaining scheduled payments of
principal and interest plus 25 basis points. As of December 31,
2007, the fair value of the 2018 Senior Notes approximated
their carrying value.
In addition to the Credit Facility, in connection with the financing
of the Tektronix acquisition in November 2007, the Company
entered into a $1.9 billion unsecured revolving bridge loan
On July 21, 2006, a financing subsidiary of the Company
issued the Eurobond Notes in a private placement outside
76
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 commissions but prior
to the deduction of other issuance costs, were €496 million
($627 million) and were used to pay down a portion of the
Company’s outstanding commercial paper and for general
corporate purposes. The Company may redeem the notes upon
the occurrence of specified, adverse changes in tax laws or
interpretations under such laws, at a redemption price equal
to the principal amount of the notes to be redeemed. As of
December 31, 2007, the fair value of the Eurobond Notes was
approximately $700 million.
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, 2007, the accreted
value of the outstanding LYONs was lower than the traded
market value of the underlying common stock issuable upon
conversion. The Company may redeem all or a portion of the
LYONs for cash at any time at scheduled redemption prices.
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 holders 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. As of December 31, 2007, the fair value
of the LYONs was approximately $1.1 billion.
Under the terms of the LYONs, the Company will pay contingent
interest to the holders of LYONs during any six month period
from January 23 to July 22 and from July 23 to January 22 if the
average market price of a LYON for a specified measurement
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 with respect to any quarterly
period is equal to the higher of either 0.0315% percent of the
bonds’ average market price during the specified measurement
period or the amount of the common stock dividend paid
during such quarterly period multiplied by the number of
shares issuable upon conversion of a LYON. The Company paid
approximately $1.2 million of contingent interest on the LYONs
for the year ended December 31, 2007.
The $250 million of 6.1% notes due 2008 mature October 15,
2008. The fair value of the 2008 notes, after taking into account
the interest rate swaps discussed below, is approximately $255
million at December 31, 2007. 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, 2007,
the net interest rate on $100 million of the notes was 4.43% 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 instruments
qualify as “effective” or “perfect” hedges.
The Company does not have any rating downgrade triggers
that would accelerate the maturity of a material amount
of outstanding debt, except as follows. Under each of
the Eurobond Notes and the 2018 Notes, if the Company
experiences a change of control and a rating downgrade of a
specified nature within a specified period following the change
of control, the Company will be required to offer to repurchase
the notes at a price equal to 101% of the principal amount plus
accrued interest in the case of 2018 Notes, or the principal
amount plus accrued interest in the case of Eurobond Notes.
A downgrade in the Company’s credit rating would increase
the cost of borrowings under the Company’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 incurrence of secured debt
and sale/leaseback transactions. None of these covenants are
considered restrictive to the Company’s operations and as of
December 31, 2007, the Company was in compliance with all
of its debt covenants.
The minimum principal payments during the next five years
are as follows: 2008 – $331 million; 2009 – $4 million; 2010 –
77
$5 million; 2011 – $5 million, 2012 – $1,504 million and $1,877
million thereafter.
The Company made interest payments of $95 million, $48
million and, $43 million in 2007, 2006 and 2005, respectively.
(9) 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 Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106 and 132(R).
SFAS No. 158 requires the Company to recognize 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 consolidated
balance sheet, 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
consolidated balance sheet pursuant to the provisions of SFAS
No. 87. These amounts will be subsequently recognized as
net periodic pension 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 consolidated balance sheet at
December 31, 2006 are presented in the following table for
pension benefit plans (see Note 10 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 recognized an additional minimum pension
liability pursuant to the provisions of SFAS No. 87. The effect
of recognizing the additional minimum liability is included
in the table below in the column labeled “Prior to Adopting
SFAS No. 158.”
As of December 31, 2006
($ in millions)
US Pension Benefits
Pension liability
Accumulated other comprehensive loss, after income tax effect
Non-US Pension Benefits
Pension liability
Accumulated other comprehensive loss, after income tax effect
Total Pension Benefits
Pension liability
Accumulated other comprehensive loss, after income tax effect
Prior to Adopting
SFAS 158
Effect of Adopting
SFAS 158
As Reported
$ (114.3)
98.9
$ (222.9)
15.9
$ (337.2)
114.8
$ --
$ (114.3)
--
98.9
$ 13.0
(9.1)
$ 13.0
(9.1)
$ (209.9)
6.8
$ (324.2)
105.7
78
Included in accumulated other comprehensive income at
December 31, 2007 are the following amounts that have not
yet been recognized in net periodic pension cost: unrecognized
prior service credits of $3.6 million ($2.3 million, net of tax) and
unrecognized actuarial losses of $92.5 million ($60.3 million,
net of tax). The unrecognized losses and prior service costs,
net, is calculated as the difference between the actuarially
determined projected benefit obligation and the value of the
plan assets less accrued pension costs as of September 30,
2007. The prior service credits and actuarial loss included
in accumulated comprehensive income and expected to be
recognized in net periodic pension costs during the year ending
December 31, 2008 is $0.3 million ($0.2 million, net of tax) and
$6.5 million ($4.4 million, net of tax), respectively. No plan
assets are expected to be returned to the Company during the
year ending December 31, 2008.
The Company has noncontributory defined benefit pension
plans which cover certain of its domestic employees. Benefit
accruals under most of these plans have ceased. It is the
Company’s policy to fund, at a minimum, amounts required by
the Internal Revenue Service. The Company acquired Sybron
Dental in May 2006, including its pension plans. The Company
acquired Tektronix in November 2007, including its pension
plans. The following sets forth the funded status of the U.S.
and non-U.S. plans as of the most recent actuarial valuations
using a measurement date of September 30 for the plans not
acquired in the Tektronix acquisition. Tektronix was acquired
subsequent to September 30, therefore, the measurement date
for the Tektronix pension plans was the date of acquisition ($
in millions):
79
U.S. Pension Benefits
Non-U.S. Pension Benefits
2007
2006
2007
2006
Change in pension benefit obligation
Benefit obligation at beginning of year
$ 695.6
$ 629.8
$ 532.3
$ 447.0
Service cost
Interest cost
Employee contributions
Amendments and other
Benefits paid and other
Acquisition
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
80
Foreign exchange rate impact
Fair value of plan assets at end of year
Funded status
Accrued contribution
Accrued benefit cost
3.0
44.7
--
--
(47.4)
563.7
17.2
--
1,276.8
581.3
78.5
0.7
--
--
(47.4)
587.4
--
1,200.5
(76.3)
--
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)
--
14.0
24.4
2.5
(0.8)
(30.8)
114.9
(36.6)
39.7
659.6
315.1
20.6
23.9
2.5
--
(30.8)
61.4
18.8
411.5
(248.1)
9.7
10.9
19.4
2.1
(8.9)
(26.1)
51.2
(13.9)
50.6
532.3
235.6
18.4
21.3
2.2
(4.0)
(26.1)
39.9
27.8
315.1
(217.2)
7.4
$ (76.3)
$ (114.3)
$ (238.4)
$ (209.8)
The combined underfunded status of the U.S. and Non-U.S. pension plans of $315 million at December 31, 2007 is recognized in
the accompanying consolidated balance sheet as accrued compensation and benefits included in other non-current liabilities. Refer
to Note 7.
Weighted average assumptions used to determine benefit obligations measured at September 30:
Discount rate
Rate of compensation increase
U. S. Plans
Non-U.S. Plans
2007
6.00%
4.00%
2006
5.75%
4.00%
2007
5.15%
3.20%
2006
4.35%
2.95%
U. S. Pension Benefits
Non-U.S. Pension Benefits
2007
2006
2007
2006
Components of net periodic pension cost ($ 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
$ 3.0
44.7
(48.6)
--
14.0
--
$ 4.7
$ 14.0
$ 10.9
36.9
(41.5)
--
16.9
--
24.4
(18.6)
(0.2)
1.4
0.1
19.4
(12.9)
(0.2)
1.7
(2.8)
Net periodic pension cost
$ 13.1
$ 17.0
$ 21.1
$ 16.1
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
Selection of Expected Rate of Return on Assets
U. S. Plans
Non-U.S. Plans
2007
5.75%
8.00%
4.00%
2006
5.50%
8.00%
4.00%
2007
4.35%
5.55%
2.95%
2006
4.00%
5.00%
2.95%
For the years ended December 31, 2007, 2006, and 2005, the Company used an expected long-term rate of return assumption of
8.0% 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 2008 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 0.75% to 7.5% in 2007.
81
Investment Policy
The U.S. plan’s goal is to maintain between 60% and 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 assets by asset categories at measurement date – September 30 for each year)
Equity securities
Debt securities
Cash & Other
Total
U. S. Pension Benefits
Non-U.S. Pension Benefits
2007
66%
34%
--
100%
2006
64%
36%
--
100%
2007
41%
42%
17%
100%
2006
31%
36%
33%
100%
Other Matters
Substantially all employees not covered by defined benefit
plans are covered by defined contribution plans, which generally
provide funding based on a percentage of compensation.
Pension expense for all plans amounted to $105 million, $88
million and, $66 million for the years ended December 31,
2007, 2006 and 2005, respectively.
(10) Other Post Retirement Employee Benefit Plans:
In addition to providing pension benefits, the Company provides
certain health care and life insurance benefits for some of its
retired employees in the United States. Certain employees
may become eligible for these benefits as they reach normal
retirement age while working for the Company. The following
sets forth the funded status of the domestic plans as of the
most recent actuarial valuations using a measurement date of
September 30 ($ in millions):
In connection with the acquisition of Tektronix in November
2007, the Company acquired approximately $589 million of
assets associated with Tektronix’ existing U.S. pension plans
and merged those assets with the assets included in the
Company’s U.S. pension plan. Included in the plan assets of the
Tektronix plan are investments in real estate, absolute return
funds and private equity with a value of $43 million as of the
date of acquisition – November 17, 2007, whose fair values
have been estimated by management based upon information
supplied to the Company by the fund managers or the general
partners, in the absence of readily determinable market values
that are available on publicly traded securities. The value of the
plan assets directly affects the funded status of the Company’s
U.S. pension plan recorded in the financial statements.
Expected Contributions
The Company was not statutorily required to make contributions
to the U.S. plan for 2006 or 2007. The Company contributed $26
million to the non-U.S. plans during 2007. The Company is not
required to and has no plans to make contributions to the U.S.
plan in 2008. The Company expects to contribute approximately
$29 million in employer contributions and unfunded benefit
payments to the non-U.S. plans in 2008.
The following table sets forth benefit payments, which reflect
expected future service, as appropriate, expected to be paid by
the plans in the periods indicated.
82
Change in benefit obligation
Benefit obligation at beginning
of year
Service cost
Interest cost
($ in millions)
U.S. Pension
Plans
Non-U.S.
Pension Plans
All Pension
Plans
Amendments and other
Actuarial loss (gain)
$ 82.0
$ 29.2
$ 111.2
Acquisition
2008
2009
2010
2011
2012
84.8
85.4
86.8
89.0
31.0
32.2
33.1
35.2
2013–2017
467.5
180.6
115.8
117.6
119.9
124.2
648.1
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
Accrued benefit cost
Post Retirement
Medical Benefits
2007
2006
$ 112.3
$ 105.5
1.2
6.5
(0.3)
1.1
20.8
1.9
(12.3)
131.2
0.9
5.8
(3.3)
(7.0)
19.2
2.5
(11.3)
112.3
--
--
(131.2)
(112.3)
2.9
2.3
$ (128.3)
$ (110.0)
At December 31, 2007, $115 million of the total underfunded
status of the plan was recognized as long-term accrued post
retirement liability since it is not expected to be funded within
one year.
Effect of a one-percentage-point change
in assumed health care cost trend rates
($ in millions):
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
2007
6.00%
9.00%
5 years
5.00%
2006
5.75%
9.00%
5 years
5.00%
The medical trend rate used to determine the post retirement
benefit obligation was 9% for 2007. The rate decreases
gradually 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.
($ in millions)
2008
2009
2010
2011
2012
2013-2017
Amount
$ 13.1
13.3
13.3
13.3
12.8
57.8
Effect on the total of service
and interest
cost components
Effect on post retirement
medical benefit obligation
1% Point
Increase
1% Point
Decrease
$ 0.7
$ (0.6)
9.4
( 8.2)
Post Retirement
Medical Benefits
($ in millions)
2007
2006
Components of net periodic
benefit cost
Service cost
Interest cost
Amortization of loss
Amortization of prior service credit
Net periodic benefit cost
$ 1.2
$ 0.9
6.5
3.6
(7.2)
$ 4.1
5.8
4.1
(7.2)
$ 3.6
The incremental effects of adopting the provisions of SFAS No.
158 on the Company’s consolidated balance sheet at December
31, 2006 are presented in the following table for other post-
retirement employee benefit plans:
83
As of December 31, 2006
($ in millions)
Other Post
Retirement
Benefits liability
Accumulated other
comprehensive
loss (income), after
income tax effect
Prior to
Adopting
SFAS 158
Effect of
Adopting
SFAS 158
As
Reported
$ (120.0)
$ 10.0
$ (110.0)
--
(6.5)
(6.5)
Included in accumulated other comprehensive income at
December 31, 2007 are the following amounts that have not yet
been recognized in net periodic pension cost: unrecognized prior
service credits of $38.2 million ($24.9 million, net of tax) and
unrecognized actuarial losses of $32.5 million ($21.2 million,
net of tax). The unrecognized losses and prior service costs,
net, is calculated as the difference between the actuarially
determined projected benefit obligation and the value of the
plan assets less accrued pension costs as of September 30,
2007. The prior service credits and actuarial loss included
in accumulated comprehensive income and expected to be
recognized in net periodic pension costs during the year ending
December 31, 2008 is $7.2 million ($4.9 million, net of tax) and
$3.2 million ($2.2 million, net of tax), respectively.
(11) Leases And Commitments:
The Company’s leases extend for varying periods of time up to
10 years and, in some cases, contain renewal options. Future
minimum rental payments for all operating leases having initial
or remaining non-cancelable lease terms in excess of one year
are $100 million in 2008, $91 million in 2009, $53 million in
2010, $35 million in 2011, $30 million in 2012 and $59 million
thereafter. Total rent expense charged to income for all operating
leases was $103 million, $84 million and, $68 million, for the
years ended December 31, 2007, 2006, and 2005, respectively.
The Company generally accrues estimated warranty costs
at the time of sale. In general, manufactured products are
warranted against defects in material and workmanship when
properly used for their intended purpose, installed correctly,
and appropriately maintained. Warranty period terms depend
on the nature of the product and range from 90 days up to
the life of the product. The amount of the accrued warranty
liability is determined based on historical information such
as past experience, product failure rates or number of units
repaired, estimated cost of material and labor, and in certain
instances estimated property damage. The liability, shown in
the following table, is reviewed on a quarterly basis and may
be adjusted as additional information regarding expected
warranty costs becomes known.
In certain cases the Company will sell extended warranty
or maintenance agreements. The proceeds from these
agreements is deferred and recognized as revenue over the
term of the agreement.
The following is a rollforward of the Company’s warranty
accrual for the years ended December 31, 2007 and 2006 ($
in thousands):
December 31, 2005
Accruals for warranties issued during period
Settlements made
Additions due to acquisitions
Balance December 31, 2006
Accruals for warranties issued during period
Changes in estimates related to
pre-existing warranties
Settlements made
Additions due to acquisitions
Balance December 31, 2007
$ 92,304
93,692
(93,985)
5,367
97,378
98,808
1,709
(104,974)
17,779
$ 110,700
(12) 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. 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, which amount was
reflected in the Company’s results of operations in 2005. The
purchase agreement pursuant to which the Company acquired
Accu-Sort in 2003 provides certain indemnification for the
Company with respect to this matter, and an arbitrator 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. In April 2007, the Company received this payment
from the former owners and recorded a pre-tax gain of $12
million ($7.8 million after-tax, or $0.02 per diluted share) which
is included in “Other (income) expense” in the accompanying
Consolidated Statement of Earnings for the year ended
December 31, 2007.
The Company 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
involving employment matters and
commercial disputes. The Company may also become subject
to lawsuits as a result of past or future acquisitions or as a
result of the liabilities retained from, or representations,
warranties or indemnities provided in connection with, divested
84
businesses. Some of these lawsuits include claims for punitive
and consequential as well as compensatory damages. While
the Company maintains workers compensation, property,
cargo, automobile, aviation, crime, fiduciary, product, general
liability, and directors’ and officers’ liability insurance (and
have acquired rights under similar policies in connection with
certain acquisitions) that it believes cover a portion of these
claims, this insurance may be insufficient or unavailable to
cover such losses. 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
unavailable to cover such losses. Based upon the Company’s
experience, current information and applicable laws, it does
not believe that proceedings and claims will have a material
adverse effect on its financial position, cash flows or results
of operations.
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 most of its lines of insurance,
and Company management believes that it maintains adequate
accruals to cover the retained liability. Company management
determines the accrual for self-insurance liability based on claims
filed and an estimate of claims incurred but not yet reported.
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
disposal 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 regulations currently in effect, is not expected to have a
material adverse effect on the Company’s capital expenditures,
earnings or competitive position and the Company does not
anticipate material capital expenditures for environmental
control facilities.
In addition to environmental compliance costs, the Company
from time to time incurs costs related to alleged damages
associated 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 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
agencies pursuant to statutory 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 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 remediation efforts
based on environmental studies as well as its prior experience
with similar sites. If the Company determines that potential
remediation liability for properties currently or previously
owned is probable and reasonably estimable, 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 insurance
recoveries as well as recoveries from other potentially
responsible parties, it does not recognize any insurance
recoveries for environmental liability claims until realization
is deemed probable and reasonably estimable. 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 liability with right of contribution
is possible under the Comprehensive Environmental Response,
85
Compensation and Liability Act of 1980 and other environmental laws and regulations. As such, the Company cannot assure that
its estimates of environmental liabilities will not change.
In view of the Company’s financial position and reserves for environmental remediation matters and environmental-related
personal injury claims based on current information and the applicable laws and regulations currently in effect, the Company
believes that its liability related to past or current waste disposal practices and other hazardous materials handling practices
will not have a material adverse effect on its results of operations, financial condition or cash flow.
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 coverage and
any such liability could exceed the amount of the insurance coverage.
As of December 31, 2007, 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.
(13) Income Taxes:
The provision for income taxes from continuing operations for the years ended December 31 consists of the following ($ in thousands):
86
Current:
Federal U.S.
Other than U.S.
State and local
Deferred:
Federal U.S.
Other than U.S.
State and Local
2007
2006
2005
$ 263,078
103,511
26,642
70,953
(44,876)
3,793
$ 141,085
133,827
20,571
29,604
(12,982)
7,532
$ 92,409
124,160
12,654
87,561
9,903
5,446
Income tax provision
$ 423,101
$ 319,637
$ 332,133
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
2007
$ 25,812
80,040
(50,486)
87,921
(29,636)
(103,768)
(845,914)
32,310
194,879
(181,886)
50,093
221,244
283
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
$ (519,108)
$ (433,810)
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.
87
The effective income tax rate for the years ended December 31 varies from the statutory federal income tax rate as follows:
Percentage of Pre-tax Earnings
Statutory federal income tax rate
Increase (decrease) in tax rate resulting from:
State income taxes (net of Federal income tax benefit)
Taxes on foreign earnings
German tax credit
Foreign tax credit valuation allowances
In-process research and development
Research and experimentation credits and other
Effective income tax rate
2007
35.0%
1.2
(10.6)
--
--
1.3
(1.1)
2006
35.0%
1.5
(8.9)
(1.4)
(2.4)
--
(1.4)
25.8%
22.4%
2005
35.0%
1.0
(8.3)
--
--
--
(0.4)
27.3%
The effective tax rate for 2007 of 25.8% reflects net discrete
tax benefits of approximately $21 million, or $0.07 per diluted
share. New tax legislation that was signed into law in several
taxing jurisdictions during 2007, most notably in Germany and
Denmark, reduced income tax rates for 2008 and future periods
which resulted in a reduction in the Company’s deferred tax
liabilities and a like reduction in 2007 income tax expense as
required under SFAS No. 109, Accounting for Income Taxes.
The lower statutory rates are expected to be offset by other
statutory changes in these jurisdictions, such that the Company’s
effective tax rate in future years will not be materially reduced
as a result of the legislation. Partially offsetting the benefit
from the above tax rate reduction was the effect of establishing
income tax reserves during the year related to uncertain tax
positions in various taxing jurisdiction, net of the reduction
of tax reserves associated with Sweden as discussed below.
The Company’s effective income tax rate for 2006 reflects net
discrete tax benefits of $69 million, or $0.21 per diluted share
associated with 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 $335 million, $204
million and, $168 million in 2007, 2006, and 2005, respectively.
The Company recognized a tax benefit of $66 million, $36
million, and $15 million in 2007, 2006 and 2005, 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, 2007
are tax benefits for U.S. and non-U.S. net operating loss
carryforwards totaling $60 million (net of applicable valuation
allowances of $149 million). Certain of the losses can be
carried forward indefinitely and others can be carried forward
to various dates through 2027. The recognition of any future
benefit resulting from the reduction of valuation allowances
established in purchase accounting will reduce goodwill of
the acquired business. In addition, the Company had general
business and foreign tax credit carryforwards of $96 million at
December 31, 2007 and also has recorded a deferred tax asset
for foreign credits of $65 million related to the indirect impact
of certain unrecognized tax benefits (see below).
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, on
January 1, 2007. As a result of the implementation of
Interpretation No. 48, the Company recognized a decrease
in the liability for unrecognized tax benefits of $63 million,
which was accounted for as an increase to the January 1,
2007 balance of retained earnings. As of the date of adoption
and after the impact of recognizing the decrease in the
liability noted above, the Company’s gross unrecognized tax
benefits totaled $332 million ($254 million, net of offsetting
indirect tax benefits and including $59 million associated with
potential interest and penalties). As of December 31, 2007,
gross unrecognized tax benefits totaled $475 million ($408
million, net of offsetting indirect tax benefits and including
$81 million associated with potential interest and penalties).
The net amount of unrecognized tax benefits at December
31, 2007 (including accrued interest and penalties) that, if
reversed, would impact the effective rate is $328 million.
Unrecognized tax benefits and associated accrued interest
and penalties are included in “Taxes, income and other” in
accrued expenses as detailed in Note 7.
The Company recognizes potential accrued interest and
penalties associated with unrecognized tax positions within its
global operations in income tax expense. During the year ended
December 31, 2007, the Company recognized approximately
$24 million in potential interest and penalties associated with
uncertain tax positions. To the extent interest and penalties are
not assessed with respect to uncertain tax positions, amounts
accrued will be reduced and reflected as a reduction of the
overall income tax provision.
88
A reconciliation of the beginning and ending amount of
unrecognized tax benefits, excluding amounts accrued for
potential interest and penalties, is as follows ($ in thousands):
of the Company’s prior year tax positions. Previously provided
reserves associated with these positions were reduced and
included in “Reduction for tax positions of prior years” in the
Balance January 1, 2007
$ 331,701
table above.
Additions based on tax positions related
to the current year
Additions for tax positions of prior years
Reductions for tax position of prior years
Acquisitions
Lapse of statute of limitations
Settlements
Effect of foreign currency translation
35,871
63,315
(37,075)
62,122
(673)
(2,043)
21,889
Balance December 31, 2007
$ 475,107
The Company and its subsidiaries are routinely examined by
various taxing authorities. The Internal Revenue Service (“IRS”)
has initiated an examination of certain of the Company’s
federal income tax returns for the years 2004 and 2005. It is
anticipated that the examination will be completed within
the next twelve months. To date, the IRS has proposed, and
management has agreed to certain adjustments that will not
have a material impact on the Company’s financial position or
results of operations. In addition, the Company has subsidiaries
in Germany, Canada, Denmark, United Kingdom, Sweden and
various other states, provinces and countries that are currently
under audit for years ranging from 1997 through 2005. While
the audits in Sweden are still in process, during the fourth
quarter 2007, favorable court rulings in other cases resulted in
the Swedish tax authority withdrawing action regarding certain
The Company files numerous consolidated and separate
income tax returns in the United States Federal jurisdiction and
in many state and foreign jurisdictions. With few exceptions,
the Company is no longer subject to US Federal income tax
examinations for years before 2004 and is no longer subject
to state, local and foreign income tax examinations by tax
authorities for years before 1997.
Management estimates that it is reasonably possible that
unrecognized tax benefits may be reduced up to $100 million
within twelve months as a result of resolution of worldwide
tax matters.
The Company provides income taxes for unremitted earnings
of foreign subsidiaries that are not considered permanently
reinvested overseas. As of December 31, 2007, the approximate
amount of earnings from foreign subsidiaries that the Company
considers permanently reinvested and for which deferred taxes
have not been provided was approximately $5.4 billion. United
States income taxes have not been provided on earnings that
are planned to be reinvested indefinitely outside 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.
89
(14) 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 from
continuing operations per share of common stock is summarized as follows (in thousands, except per share amounts):
For the Year Ended December 31, 2007
Basic EPS
Net earnings from
continuing operations
(Numerator)
Shares
(Denominator)
Per Share
Amount
$ 1,213,998
311,225
$ 3.90
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
10,033
--
--
--
6,245
11,989
Diluted EPS
$ 1,224,031
329,459
$ 3.72
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
90
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
Net earnings from
continuing operations
(Numerator)
Shares
(Denominator)
Per Share
Amount
$ 1,109,206
307,984
$ 3.60
9,343
--
--
--
5,229
12,038
$ 1,118,549
325,251
$ 3.44
Net earnings from
continuing operations
(Numerator)
Shares
(Denominator)
Per Share
Amount
$ 885,609
308,905
$ 2.87
8,802
--
--
--
7,040
12,038
Diluted EPS
$ 894,411
327,983
$ 2.72
(15) Stock Transactions:
On May 15, 2007, the Company’s shareholders voted to approve
an amendment to Danaher’s Certificate of Incorporation to
increase the number of authorized shares of common stock
of Danaher to a total of one billion shares, $.01 par value.
Danaher’s Certificate of Incorporation was amended to reflect
this change on May 16, 2007.
On November 7, 2007, the Company completed the public
offering of 6.9 million shares of its common stock at a price
to the public of $82.25 per share. The net proceeds, after
expenses and the underwriter’s discount, were $550 million.
The proceeds were used, in part, to fund the acquisition of
Tektronix (refer to Note 2).
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
privately 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 available for use in connection with the
Company’s existing stock plans or successor plans and for
other corporate purposes.
During 2007, the Company repurchased approximately 1.6
million shares of Company common stock in open market
transactions at an aggregate cost of $117 million. No shares
were repurchased under this program in 2006. 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 2007 repurchases were
funded from borrowings under the Company’s commercial
paper program and from available cash. The 2005 repurchases
were funded from available cash and from borrowings under
uncommitted lines of credit. At December 31, 2007, the
Company had approximately 3.4 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, existing lines of credit or
commercial paper borrowings.
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
and the 2007 Stock Incentive Plan approved by the Company’s
shareholders in May 2007, and RSUs have been issued to the
Company’s CEO pursuant to an award approved by shareholders
in 2003. No further equity awards will be issued under the 1998
Stock Option Plan. The 2007 Stock Incentive Plan provides for the
grant of stock options, stock appreciation rights, RSUs, restricted
stock or any other stock based award. In connection with the
Tektronix acquisition, the Company assumed the Tektronix 2005
Stock Incentive Plan and the Tektronix 2002 Stock Incentive
Plan and assumed certain outstanding stock options, restricted
stock and RSUs that had been awarded to Tektronix employees
under the plans. These plans operate in a similar manner to the
Company’s 2007 Stock Incentive Plan. No further equity awards
will be issued under the Tektronix 2005 Stock Incentive Plan and
the Tektronix 2002 Stock Incentive Plan.
Stock options granted under the 2007 Stock Incentive Plan, the
1998 Stock Option Plan, the Tektronix 2005 Stock Incentive Plan
and the Tektronix 2002 Stock Incentive Plan generally vest over
a five-year period and terminate ten years from the issuance
date, though the specific terms of each grant are determined
by the Compensation Committee of the Company’s Board of
Directors (Compensation Committee). Option exercise prices
for options granted by the Company under these plans equal
the closing price on the NYSE of the common stock on the date
of grant. Option exercise prices for the options outstanding
under the Tektronix 2005 Stock Incentive plan and the Tektronix
2002 Stock Incentive Plan were based on the closing price of
Tektronix common stock on the date of grant; in connection
with the Company’s assumption of these options, the number
of shares underlying each option and exercise price of each
option were adjusted to reflect the substitution of Danaher
stock for the Tektronix stock underlying these awards. RSUs
granted under these plans provide for the issuance of a share
of the Company’s common stock at no cost to the holder. They
are generally subject to performance criteria determined
by the Compensation Committee, as well as time-based
vesting such that 50% of the RSUs granted vest (subject to
satisfaction of the performance criteria) on each of the fourth
and fifth anniversaries of the grant date. Prior to vesting, RSUs
do not have dividend equivalent 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
91
RSUs vest. Restricted shares issued under the Tektronix 2005
Stock Incentive Plan are granted subject to certain time-based
vesting restrictions such that the restricted share awards are
fully vested after a period of five years. Recipients of restricted
shares have the right to vote such shares and receive dividends,
whereas recipients of RSUs have no voting rights and receive
no dividend equivalents. The restricted shares are considered
issued and outstanding at the date the award is granted.
The options, RSUs and restricted shares 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 forfeited 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, 2007, approximately
9.9 million shares of the Company’s common stock were
reserved for issuance under the 2007 Stock Incentive Plan.
Effective January 1, 2006, the Company adopted Statement
of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS No. 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 No. 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 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. Awards granted after December
31, 2005 are valued at fair value in accordance with the
provisions of SFAS No. 123R and recognized as an expense on
a straight-line basis over the service periods of each award.
The Company estimated forfeiture rates based on its historical
experience. Stock based compensation of $73 million and
$67 million for the years ended December 31, 2007 and 2006,
respectively, has been recognized as a component of selling,
general and administrative expenses in the accompanying
Consolidated Financial Statements as payroll costs of the
employees receiving the rewards 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 Company 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 2007 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, 2007, 2006 and 2005:
Year Ended December 31
2007
2006
2005
Risk-free
interest rate
3.68 – 4.77% 4.39 – 5.1%
4.3%
Weighted average
volatility
22%
Dividend yield
0.1 – 0.2%
22%
0.1%
23%
0.1%
Expected years
until exercise
7.5 – 9.5
7.5 – 9.5
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 instrument. Expected volatility is based on
implied volatility from traded options on the Company’s stock
and historical volatility of the Company’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 historical data
92
on exercise timing. Separate groups of employees that have similar behavior with regard to holding options for longer periods and
different forfeiture rates are considered separately for valuation and attribution purposes.
As a result of adopting SFAS No. 123R in 2006, net earnings for the year ended December 31, 2007 and December 31, 2006 were
$39 million (net of $15 million tax benefit) and $39 million (net of $16 million benefit), respectively 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 from
continuing operations for the year ended December 31, 2007 was $0.13 and $0.11, respectively, per share. The impact on both basic
and diluted earnings per share from continuing operations for the year ended December 31, 2006 was $0.12 per share.
Pro forma net earnings as if the fair value based method had been applied to all awards are as follows:
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
2007
2006
2005
$ 1,369,904
$ 1,122,029
$ 897,800
51,546
(51,546)
46,854
(46,854)
$ 1,369,904
$ 1,122,029
$ 4.40
$ 4.40
$ 4.19
$ 4.19
$ 3.64
$ 3.64
$ 3.48
$ 3.48
4,876
(34,377)
$ 868,299
$ 2.91
$ 2.81
$ 2.76
$ 2.67
The following table summarizes the components of the Company’s stock-based compensation program recorded as expense
($ in thousands):
93
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
2007
2006
2005
$ 18,708
(6,548)
$ 12,160
$ 54,639
(15,253)
$ 39,386
$ 73,347
(21,801)
$ 51,546
$ 12,561
$ 7,502
(4,396)
(2,626)
$ 8,165
$ 4,876
$ 54,630
$ --
(15,941)
--
$ 38,689
$ --
$ 67,191
(20,337)
$ 46,854
$ 7,502
(2,626)
$ 4,876
As of December 31, 2007, $77 million and $186 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 3 years for RSUs and 2.5
years for stock options.
Option activity under the Company’s stock option plans as of December 31, 2007 and changes during the three years ended December
31, 2007 were as follows (in 000’s; except exercise price and number of years):
Outstanding at January 1, 2005
Granted
Exercised
Cancelled
Outstanding at December 31, 2005
Granted
Exercised
Cancelled
Outstanding at December 31, 2006
Granted
Exercised
Cancelled
94
Outstanding at December 31, 2007
Vested and Expected to Vest at December 31, 2007
Exercisable at December 31, 2007
Shares
23,509
3,078
(1,601)
(1,594)
23,392
4,057
(2,676)
(814)
23,959
3,106
(4,126)
(711)
22,228
20,767
10,904
Weighted
Average
Share Price
Weighted Average
Remaining
Contractual Term
(in Years)
Aggregate
Intrinsic Value
$ 30.80
$ 56.66
$ 23.55
$ 39.00
$ 34.14
$ 62.60
$ 23.07
$ 50.20
$ 39.65
$ 74.04
$ 27.60
$ 52.85
$ 46.27
$ 45.70
$ 33.82
6
6
4
$ 921,768
$ 873,084
$ 587,930
Options outstanding at December 31, 2007 are summarized below:
Exercise Price
$ 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
$ 72.85 to $ 83.39
Outstanding
Exercisable
Shares
(thousands)
Average
Exercise Price
Average
Remaining Life
Shares
(thousands)
Average
Exercise Price
34
5,658
5,041
4,857
4,043
2,595
$ 19.85
$ 24.94
$ 35.77
$ 52.32
$ 63.32
$ 75.63
0.4
3.0
5.0
7.0
8.0
10.0
34
5,620
3,100
1,692
430
28
$ 19.85
$ 24.91
$ 35.52
$ 52.37
$ 63.43
$ 75.34
The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price
on the last trading day of 2007 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, 2007. 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, 2007, 2006 and 2005 was $201 million,
$110 million and $35 million, respectively. Exercise of options during the years ended December 31, 2007, 2006 and 2005 resulted in
cash receipts of $113 million, $60 million and $38 million, respectively. The Company recognized a tax benefit of approximately $66
million, $36 million, and $15 million in 2007, 2006 and 2005, respectively related to the exercise of employee stock options, which
has been recorded as an increase to additional paid-in capital.
The following table summarizes information on unvested restricted stock units outstanding as of December 31, 2007:
Unvested Restricted Stock Units
Unvested at January 1, 2005
Forfeited
Vested
Granted
Unvested at December 31, 2005
Forfeited
Vested
Granted
Unvested at December 31, 2006
Forfeited
Vested
Granted
Unvested at December 31, 2007
(16) Segment Data:
Number of Shares
(in thousands)
Weighted-Average
Grant-Date Fair Value
1,061
(100)
--
130
1,091
(30)
--
536
1,597
(48)
--
532
2,081
$ 48.74
52.60
63.14
49.94
56.70
62.13
54.14
66.63
79.18
$ 59.96
95
The Company currently operates in four reporting segments: Professional Instrumentation, Medical Technologies, Industrial
Technologies and Tools & Components.
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 segment’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, 2007, 2006 and 2005 is presented in the following table (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
2007
2006
2005
$ 3,537,912
$ 2,906,464
$ 2,600,575
2,997,986
3,153,377
1,336,642
2,219,976
2,988,820
1,350,796
1,181,534
2,794,935
1,294,454
$ 11,025,917
$ 9,466,056
$ 7,871,498
$ 709,502
$ 625,577
$ 538,322
393,230
532,477
175,634
(70,134)
261,604
467,737
194,063
(48,771)
138,672
409,306
199,289
(38,014)
$ 1,740,709
$ 1,500,210
$ 1,247,575
$ 6,692,014
$ 2,691,045
$ 2,589,022
6,160,557
3,536,156
801,117
282,091
5,534,139
3,623,745
824,408
190,814
2,408,575
3,158,891
785,833
220,788
$ 17,471,935
$ 12,864,151
$ 9,163,109
96
Liabilities:
Professional Instrumentation
$ 1,286,739
$ 784,195
$ 794,948
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
Other
1,489,739
828,963
214,784
4,566,022
1,482,332
832,452
238,740
2,881,772
855,227
897,254
240,907
1,294,423
$ 8,386,247
$ 6,219,491
$ 4,082,759
$ 64,802
$ 48,830
$ 47,816
119,673
63,206
20,811
84,284
61,163
21,420
44,229
60,441
22,756
$ 268,492
$ 215,697
$ 175,242
$ 39,010
$ 34,478
$ 32,337
47,618
48,024
20,908
6,511
31,609
44,706
25,618
--
16,143
47,847
23,406
--
$ 162,071
$ 136,411
$ 119,733
Operations in Geographical Areas
Total Sales:
United States
Germany
United Kingdom
All other
Long-lived assets (excluding amounts held for sale – refer Note 3):
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
2007
2006
2005
$ 5,928,296
$ 5,108,477
$ 4,494,627
1,294,624
517,495
3,285,502
1,460,199
362,648
2,534,732
1,160,637
329,791
1,886,443
$ 11,025,917
$ 9,466,056
$ 7,871,498
$ 7,521,603
$ 5,471,426
$ 3,576,795
1,699,386
605,515
3,595,664
1,494,135
604,496
1,856,162
950,397
410,077
1,238,919
$ 13,422,168
$ 9,426,219
$ 6,176,188
$ 1,935,506
$ 1,542,370
$ 1,367,254
1,884,520
1,579,805
221,914
1,465,328
1,464,208
182,997
864,190
1,338,112
181,224
$ 5,621,745
$ 4,654,903
$ 3,750,780
2007
2006
2005
97
Analytical and physical instrumentation
$ 3,561,375
$ 2,917,806
$ 2,607,963
Medical & dental products
Motion and industrial automation controls
Mechanics and related hand tools
Product identification
Aerospace and defense
All other
Total
2,997,986
1,652,947
941,647
886,080
638,145
347,737
2,219,976
1,596,713
935,574
854,033
560,691
381,263
1,181,534
1,486,205
892,778
826,031
502,859
374,128
$ 11,025,917
$ 9,466,056
$ 7,871,498
(17) Quarterly Data-Unaudited (In Thousands, Except Per Share Data):
Net sales
Gross profit
Operating profit
Earnings from continuing operations
Net earnings
Earnings per share from continuing operations:
Basic
Diluted
Earnings per share:
Basic
Diluted
Net sales
Gross profit
Operating profit
98
Earnings from continuing operations
Net earnings
Earnings per share from continuing operations:
Basic
Diluted
Earnings per share:
Basic
Diluted
2007
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$ 2,521,704
$ 2,631,885
$ 2,731,151
$ 3,141,177
1,139,903
1,201,251
1,249,211
1,450,530
370,117
251,616
254,804
442,888
307,656
311,154
462,934
334,501
483,721
464,770
320,225
320,225
$ 0.80
$ 0.77
$ 1.00
$ 0.95
$ 1.08
$ 1.03
$ 1.02
$ 0.97
$ 0.81
$ 0.78
$ 1.01
$ 0.96
$ 1.56
$ 1.48
$ 1.02
$ 0.97
2006
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$ 2,113,709
$ 2,318,458
$ 2,408,495
$ 2,625,394
905,494
292,463
212,373
215,719
1,022,635
1,089,104
1,179,827
378,915
312,848
314,522
386,625
263,976
268,071
442,207
320,009
323,717
$ 0.69
$ 0.66
$ 1.01
$ 0.97
$ 0.86
$ 0.82
$ 1.04
$ 0.99
$ 0.70
$ 0.67
$ 1.02
$ 0.98
$ 0.87
$ 0.83
$ 1.05
$ 1.00
(18) New Accounting Pronouncements:
In December 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (SFAS No. 141R) and SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS No. 160”). SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS No. 141R also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. SFAS No.
160 clarifies the classification of noncontrolling interests in the
financial statements and the accounting for and reporting of
transactions between the reporting entity and holders of such
noncontrolling interests. SFAS No. 141R and SFAS No. 160
are effective for financial statements issued for fiscal years
beginning after December 15, 2008. Management is currently
evaluating the potential impact, if any, of the adoption of SFAS
No. 141R and SFAS No. 160 on the Company’s consolidated
financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities
— including an amendment of FASB Statement No. 115”
(SFAS No. 159). SFAS No. 159 expands the use of fair value
accounting but does not affect existing standards that require
assets or liabilities to be carried at fair value. Under SFAS No.
159, a company may elect to use fair value to measure accounts
and loans receivable, available-for-sale and held-to-maturity
securities, equity method investments, accounts payable,
guarantees and issued debt. Other eligible items include
firm commitments for financial instruments that otherwise
would not be recognized at inception and non-cash warranty
obligations where a warrantor is permitted to pay a third party
to provide the warranty goods or services. If the use of fair
value is elected, any upfront costs and fees related to the item
must be recognized in earnings and cannot be deferred, such as
debt issuance costs. The fair value election is irrevocable and
generally made on an instrument-by-instrument basis, even if a
company has similar instruments that it elects not to measure
based on fair value. At the adoption date, unrealized gains
and losses on existing items for which fair value has been
elected are reported as a cumulative adjustment to beginning
retained earnings. Subsequent to the adoption of SFAS No.
159, changes in fair value are recognized in earnings. SFAS No.
159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. Management is currently
evaluating the effect that the adoption of SFAS No. 159 will
have on the Company’s consolidated financial position and
results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements” (SFAS No. 157). SFAS No. 157 provides
guidance for using fair value to measure assets and liabilities.
It also responds to investors’ requests for expanded information
about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair
value and the effect of fair value measurements on earnings.
SFAS No. 157 applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value, and
does not expand the use of fair value in any new circumstances.
SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Management
is currently evaluating the effect that the adoption of SFAS No.
157 will have on the Company’s consolidated financial position
and results of operations.
99
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
disclosure 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
evaluation, 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 procedures were effective.
Management’s annual report on our internal control over
financial reporting and the independent registered public
accounting firm’s audit report on the effectiveness of our
internal controls over financial reporting are included in our
financial statements for the year ended December 31, 2007
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”, respectively,
and are incorporated herein by reference.
We completed the acquisition of Tektronix, Inc. on November
21, 2007. We consider the transaction material to Company’s
consolidated financial statements from the date of the
acquisition through December 31, 2007, and believe that the
internal controls and procedures of Tektronix have a material
effect on our internal control over financial reporting. Due to
the close proximity of the completion date of the acquisition
to the date of management’s assessment of the effectiveness
of the Company’s internal control over financial reporting,
management excluded the Tektronix business from
its
assessment of internal control over financial reporting. As
of December 31, 2007, Tektronix, an indirect, wholly-owned
subsidiary of the Company, accounted for $3.3 billion and $2.8
billion of the Company’s total and net assets, respectively, and
$133 million and $62 million of the Company’s revenues and
net loss, respectively, for the year then ended.
There have been no other 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
100
Exhibit 31.1
Certification
I, H. Lawrence Culp, Jr., certify that:
1. I have reviewed this report on Form 10-K of Danaher
Corporation;
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 presented 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
conclusions 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 registrant’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 information; and
101
b. Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant’s internal control over
financial reporting.
Date:
February 20, 2008
By:
/s/ H. Lawrence Culp, Jr.
Name: H. Lawrence Culp, Jr.
Title:
President and Chief Executive Officer
Exhibit 31.2
Certification
I, Daniel L. Comas, certify that:
1. I have reviewed this report on Form 10-K of Danaher
Corporation;
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 presented 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
102
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
conclusions 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 registrant’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 information; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant’s internal control over financial
reporting.
February 20, 2008
/s/ Daniel L. Comas
Date:
By:
Name: Daniel L. Comas
Title:
Executive Vice President and Chief Financial Officer
Exhibit 32.1
Exhibit 32.2
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
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
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, 2007 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.
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, 2007
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.
February 20, 2008
/s/ H. Lawrence Culp, Jr.
Date:
By:
Name: H. Lawrence Culp, Jr.
Title:
President and Chief Executive Officer
February 20, 2008
/s/ Daniel L. Comas
Date:
By:
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.
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.
103
Supplemental reconciliation of non-GAAP financial information to corresponding financial information
presented in accordance with GAAP
Reconciliation of Diluted Earnings Per Share from Continuing Operations (GAAP) to
Adjusted Diluted Earnings Per Share from Continuing Operations (non-GAAP):
Years Ended
Diluted Earnings Per Share from
Continuing Operations per GAAP
After-tax gain on indemnity proceeds related to
litigation matter ($12.5 million pre-tax)
After-tax gain on sale of securities acquired in
connection with an unsuccessful acquisition bid
(First Technology – $14 million pre-tax)
Gains from net reduction in income tax reserves
and discrete tax benefits
After-tax charges related to the acquisition of
Tektronix, for purchased in-process research
and development and fair value adjustments
to recorded inventory and deferred revenue
balances ($68.2 million pre-tax)
Adjusted Diluted Earnings Per Share from
Continuing Operations (non-GAAP)
December 31, 2007
December 31, 2006
% Change
$ 3.72
(0.02)
--
(0.07)
$ 3.44
8.0%
--
(0.03)
(0.21)
0.20
--
$ 3.83
$ 3.20
19.0%
104
Reconciliation of Operating Cash Flows from Continuing Operations (GAAP) to
Free Cash Flow from Continuing Operations (non-GAAP):
($ in 000’s)
Operating Cash Flows from
December
31, 2003
December
31, 2004
December
31, 2005
December
31, 2006
December
31, 2007
Continuing Operations (GAAP)
$ 822,030
$ 1,019,474
$ 1,189,267
$ 1,530,729
$ 1,699,308
Payments for Property, Plant &
Equipment (Capital Expenditures)
$ (78,733)
$ (114,580)
$ (119,733)
$ (136,411)
$ (162,071)
Free Cash Flow (non-GAAP)
$ 743,297
$ 904,894
$ 1,069,534
$ 1,394,318
$ 1,537,237
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, 2007 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
Danaher Corporation
S&P 500 (Equity Index)
S&P 500 Industrial Index (Peer Index)
3.0
2.5
2.0
1.5
1.0
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
105
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
Danaher Corporation
S&P 500
(Equity Index)
S&P 500 Industrial Index
(Peer Index)
1.00
1.40
1.75
1.70
2.22
2.69
1.00
1.29
1.43
1.50
1.73
1.83
1.00
1.32
1.56
1.60
1.81
2.03
Directors
Mortimer M. Caplin
Founder and Member
Caplin & Drysdale
H. Lawrence Culp, Jr.
President and Chief
Executive Officer
Danaher Corporation
Donald J. Ehrlich
Chief Executive Officer
Schwab Corporation
Linda P. Hefner
Executive Vice President and
General Manager – Home
Division, Wal-Mart Stores, Inc.
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 Officers
Steven M. Rales
Chairman of the Board
Mitchell P. Rales
Chairman of the
Executive Committee
H. Lawrence Culp, Jr.
President and Chief
Executive Officer
Daniel L. Comas
Executive Vice President,
Chief Financial Officer
Thomas P. Joyce, Jr.
Executive Vice President
Philip W. Knisely
Executive Vice President
James A. Lico
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 Officer
Daniel A. Raskas
Vice President –
Corporate Development
Corporate Officers
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 Gafinowitz
Vice President and
Group Executive
Alexander Granderath
Vice President and
Group Executive
Barbara B. Hulit
Vice President and
Group Executive
Alex A. Joseph
Vice President and
Group Executive
Craig B. Purse
Vice President and
Group Executive
J. David Bergmann
Vice President – Audit
Hach Ultra Analytics
Yves Docommun
Hennessy Industries, Inc.
Michael J. Schulte
Jacobs Vehicle Systems
Robert M. Tykal
KaVo
Alexander Granderath
Kerr
Steven M. Paskin
Kollmorgen
Kevin E. Layne
Kollmorgen Electro-Optical
Michael J. Wall
Leica Microsystems
David R. Martyr
Matco Tools Corporation
Thomas N. Willis
Ormco
Donald L. Tuttle
Pacific Scientific Energetic
Materials Company
H. Kenyon Bixby
Pacific Scientific Aerospace
Darryl L. Mayhorn
Radiometer
Peter Kürstein
Tektronix
James A. Lico
Tektronix Communications
Richard D. McBee
Thomson
Michael L. Douglas
Trojan Technologies
Marvin R. DeVries
Veeder-Root
Jason R. Wilbur
Videojet Technologies
Matthew L. Trerotola
Brian E. Burnett
Vice President – Danaher
Business System Office
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
Frank Anders Wilson
Vice President –
Investor Relations
Frances B. L. Zee
Vice President – Regulatory
Affairs / Quality Assurance
Major Operating
Company Presidents
ChemTreat
John A. Nygren
Danaher Sensors and
Controls
Alex A. Joseph
Danaher Tool Group
Commercial Operations
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 Gafinowitz
Hach-Lange
Jonathan O. Clark
106
Shareholder Information / www.danaher.com
Our transfer agent can help you with a variety
of shareholder related services including:
• Change of address
• Lost stock certificates
• Transfer of stock to another person
• Additional administrative services
Contacting our Transfer Agent
Computershare
PO Box 43078
Providence, RI 02940-3078
Toll Free: 800.568.3476
Outside the U.S.: 312.588.4991
Investor Relations
This annual report along with a variety of
other financial materials can be viewed at
www.danaher.com.
Additional inquiries may be directed
to Investor Relations at:
Danaher
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 6, 2008 in Washington, DC. Shareholders
who would like to attend the meeting should register
with Investor Relations by calling 202.828.0850
or via email at ir@danaher.com.
4
Auditors
Ernst & Young LLP, Baltimore, Maryland
Stock Listing
Symbol: DHR
New York Stock Exchange
2099 Pennsylvania Avenue NW, 12th Floor
Washington, DC 20006
T: 202.828.0850
www.danaher.com