10-Q 1 dhr-2015102x10q.htm 10-Q 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________________________
FORM 10-Q
 ________________________________________________________
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2015
OR
 
¨
TRANSITION REPORT UNDER 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
 
59-1995548
(State of Incorporation)
 
(I.R.S. Employer Identification number)
 
 
2200 Pennsylvania Avenue, N.W., Suite 800W
Washington, D.C.
 
20037-1701
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 202-828-0850 

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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
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  ý
The number of shares of common stock outstanding at October 16, 2015 was 685,285,314.



DANAHER CORPORATION
INDEX
FORM 10-Q
 
 
 
Page
PART I -
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II -
OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ and shares in millions, except per share amount)
(unaudited)
 
 
October 2, 2015
 
December 31, 2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
1,833.5

 
$
3,005.6

Trade accounts receivable, net
3,906.1

 
3,445.8

Inventories:
 
 
 
Finished goods
1,195.0

 
903.7

Work in process
369.2

 
266.4

Raw materials
776.4

 
612.7

Total inventories
2,340.6

 
1,782.8

Prepaid expenses and other current assets
851.6

 
952.7

Current assets, discontinued operations

 
244.4

Total current assets
8,931.8

 
9,431.3

Property, plant and equipment, net of accumulated depreciation of $2,675.0 and $2,537.0, respectively
2,791.6

 
2,171.9

Other assets
1,165.3

 
1,016.7

Goodwill
25,128.7

 
15,673.2

Other intangible assets, net
11,690.5

 
7,059.5

Other assets, discontinued operations

 
1,639.1

Total assets
$
49,707.9

 
$
36,991.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable and current portion of long-term debt
$
3,489.3

 
$
71.9

Trade accounts payable
1,819.4

 
1,825.0

Accrued expenses and other liabilities
3,274.5

 
3,191.5

Current liabilities, discontinued operations
42.4

 
308.0

Total current liabilities
8,625.6

 
5,396.4

Other long-term liabilities
6,375.8

 
4,584.4

Long-term debt
11,522.7

 
3,401.5

Long-term liabilities, discontinued operations

 
159.6

Stockholders’ equity:
 
 
 
Common stock - $0.01 par value, 2.0 billion shares authorized; 799.8 and 792.5 issued; 685.2 and 704.3 outstanding, respectively
8.0

 
7.9

Additional paid-in capital
4,887.3

 
4,480.9

Retained earnings
20,416.4

 
20,323.0

Accumulated other comprehensive income (loss)
(2,199.0
)
 
(1,433.7
)
Total Danaher stockholders’ equity
23,112.7

 
23,378.1

Non-controlling interests
71.1

 
71.7

Total stockholders’ equity
23,183.8

 
23,449.8

Total liabilities and stockholders’ equity
$
49,707.9

 
$
36,991.7

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

1


DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Sales
$
5,023.4

 
$
4,707.1

 
$
14,678.3

 
$
13,929.8

Cost of sales
(2,386.4
)
 
(2,254.8
)
 
(6,929.1
)
 
(6,699.6
)
Gross profit
2,637.0

 
2,452.3

 
7,749.2

 
7,230.2

Operating costs:
 
 
 
 
 
 
 
Selling, general and administrative expenses
(1,528.3
)
 
(1,298.0
)
 
(4,346.9
)
 
(3,894.1
)
Research and development expenses
(307.9
)
 
(288.1
)
 
(912.0
)
 
(856.3
)
Operating profit
800.8

 
866.2

 
2,490.3

 
2,479.8

Non-operating income (expense):
 
 
 
 
 
 
 
Other income
12.4

 
38.2

 
12.4

 
57.4

Interest expense
(45.3
)
 
(29.6
)
 
(103.7
)
 
(93.4
)
Interest income
0.6

 
3.6

 
5.3

 
12.2

Earnings from continuing operations before income taxes
768.5

 
878.4

 
2,404.3

 
2,456.0

Income taxes
(178.5
)
 
(197.1
)
 
(540.8
)
 
(562.4
)
Net earnings from continuing operations
590.0

 
681.3

 
1,863.5

 
1,893.6

Earnings (loss) from discontinued operations, net of income taxes
813.3

 
(0.7
)
 
805.3

 
43.1

Net earnings
$
1,403.3

 
$
680.6

 
$
2,668.8

 
$
1,936.7

Net earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.86

 
$
0.97

 
$
2.66

 
$
2.70

Diluted
$
0.85

 
$
0.95

 
$
2.62

 
$
2.65

Net earnings per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
1.18

 
$

 
$
1.15

 
$
0.06

Diluted
$
1.16

 
$

 
$
1.13

 
$
0.06

Net earnings per share:
 
 
 
 
 
 
 
Basic
$
2.04

 
$
0.97

 
$
3.80

*
$
2.76

Diluted
$
2.01

 
$
0.95

 
$
3.75

 
$
2.71

Average common stock and common equivalent shares outstanding:
 
 
 
 
 
 
 
Basic
688.5

 
702.6

 
701.7

 
701.3

Diluted
698.7

 
716.2

 
712.3

 
715.6

 
 
 
 
 
 
 
 
* Earnings per share amount does not add due to rounding.


See the accompanying Notes to the Consolidated Condensed Financial Statements.


2



DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Net earnings
$
1,403.3

 
$
680.6

 
$
2,668.8

 
$
1,936.7

Other comprehensive income (loss), net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(158.7
)
 
(670.5
)
 
(793.7
)
 
(618.6
)
Pension and post-retirement plan benefit adjustments
18.7

 
3.8

 
32.8

 
6.3

Unrealized (loss) gain on available-for-sale securities
(26.9
)
 
(18.9
)
 
(4.4
)
 
18.0

Total other comprehensive loss, net of income taxes
(166.9
)
 
(685.6
)
 
(765.3
)
 
(594.3
)
Comprehensive income (loss)
$
1,236.4

 
$
(5.0
)
 
$
1,903.5

 
$
1,342.4

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

3


DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY
($ and shares in millions)
(unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
Controlling
Interests
Shares
 
Amount
 
Balance, December 31, 2014
792.5

 
$
7.9

 
$
4,480.9

 
$
20,323.0

 
$
(1,433.7
)
 
$
71.7

Net earnings for the period

 

 

 
2,668.8

 

 

Other comprehensive loss

 

 

 

 
(765.3
)
 

Dividends declared

 

 

 
(283.7
)
 

 

Common stock-based award activity
6.1

 
0.1

 
354.9

 

 

 

Common stock issued in connection with LYONs’ conversions, including tax benefit of $15.1
1.2

 

 
51.5

 

 

 

Shares redeemed through the distribution of the communications business (26.0 shares held as Treasury shares)

 

 

 
(2,291.7
)
 

 

Change in non-controlling interests

 

 

 

 

 
(0.6
)
Balance, October 2, 2015
799.8

 
$
8.0

 
$
4,887.3

 
$
20,416.4

 
$
(2,199.0
)
 
$
71.1

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

4


DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ and shares in millions)
(unaudited)
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
Cash flows from operating activities:
 
 
 
Net earnings
$
2,668.8

 
$
1,936.7

Less: earnings from discontinued operations, net of income taxes
805.3

 
43.1

Net earnings from continued operations
1,863.5

 
1,893.6

Non-cash items:
 
 
 
Depreciation
416.1

 
404.6

Amortization
320.2

 
259.9

Stock-based compensation expense
101.2

 
83.0

Pre-tax gain on sales of investments and product line
(12.4
)
 
(57.4
)
Change in trade accounts receivable, net
49.5

 
(106.5
)
Change in inventories
(96.5
)
 
(89.1
)
Change in trade accounts payable
(142.6
)
 
(62.8
)
Change in prepaid expenses and other assets
161.8

 
108.5

Change in accrued expenses and other liabilities
(153.5
)
 
17.0

Total operating cash flows provided by continuing operations
2,507.3

 
2,450.8

Total operating cash flows provided by discontinued operations
62.9

 
68.2

Net cash provided by operating activities
2,570.2

 
2,519.0

Cash flows from investing activities:
 
 
 
Cash paid for acquisitions
(14,207.1
)
 
(632.4
)
Payments for additions to property, plant and equipment
(438.7
)
 
(409.3
)
Payments for purchases of investments
(87.1
)
 
(80.0
)
Proceeds from sales of investments and product line
43.0

 
117.4

All other investing activities
38.1

 
20.7

Total investing cash used in continuing operations
(14,651.8
)
 
(983.6
)
Total investing cash used in discontinued operations
(38.8
)
 
(14.6
)
Net cash used in investing activities
(14,690.6
)
 
(998.2
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
198.1

 
75.0

Payment of dividends
(261.6
)
 
(157.4
)
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)
6,148.4

 
(11.3
)
Proceeds from borrowings (maturities longer than 90 days)
4,950.4

 

Repayments of borrowings (maturities longer than 90 days)
(2.1
)
 
(404.9
)
All other financing activities
(3.3
)
 

Net cash provided by (used in) financing activities
11,029.9

 
(498.6
)
Effect of exchange rate changes on cash and equivalents
(81.6
)
 
(112.1
)
Net change in cash and equivalents
(1,172.1
)
 
910.1

Beginning balance of cash and equivalents
3,005.6

 
3,115.2

Ending balance of cash and equivalents
$
1,833.5

 
$
4,025.3

Supplemental disclosures:
 
 
 
Cash interest payments
$
97.8

 
$
97.7

Cash income tax payments
325.4

 
380.7

Shares redeemed through the distribution of the communications business (26.0 shares held as Treasury shares)
2,291.7

 

See the accompanying Notes to the Consolidated Condensed Financial Statements.

5


DANAHER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

NOTE 1. GENERAL
The consolidated condensed financial statements included herein have been prepared by Danaher Corporation (“Danaher” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed financial statements included herein should be read in conjunction with the financial statements as of and for the year ended December 31, 2014 and the Notes thereto included in the Company’s 2014 Annual Report on Form 10-K.
In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of October 2, 2015 and December 31, 2014, and its results of operations for the three and nine months ended October 2, 2015 and September 26, 2014 and its cash flows for each of the nine month periods then ended.
Accumulated Other Comprehensive Income (Loss) - The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions). Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.
 
Foreign Currency Translation Adjustments
 
Pension and Post-Retirement Plan Benefit Adjustments
 
Unrealized Gain (Loss) on Available-For-Sale Securities
 
Total
For the Three Months Ended October 2, 2015:
 
 
 
 
 
 
 
Balance, July 3, 2015
$
(1,456.8
)
 
$
(713.7
)
 
$
138.4

 
$
(2,032.1
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
(Decrease) increase
(158.7
)
 
12.4

 
(30.6
)
 
(176.9
)
Income tax impact

 
(2.8
)
 
11.5

 
8.7

Other comprehensive (loss) income before reclassifications, net of income taxes
(158.7
)
 
9.6

 
(19.1
)
 
(168.2
)
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
Increase (decrease)

 
13.1

(1)
(12.4
)
(2)
0.7

Income tax impact

 
(4.0
)
 
4.6

 
0.6

Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes

 
9.1

 
(7.8
)
 
1.3

Net current period other comprehensive (loss) income, net of income taxes
(158.7
)
 
18.7

 
(26.9
)
 
(166.9
)
Balance, October 2, 2015
$
(1,615.5
)
 
$
(695.0
)
 
$
111.5

 
$
(2,199.0
)
 
 
 
 
 
 
 
 
(1)  This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Note 7 for additional details).
(2)  Included in other income in the accompanying Consolidated Condensed Statement of Earnings. Refer to Note 10 for additional details.

6


 
Foreign Currency Translation Adjustments
 
Pension and Post-Retirement Plan Benefit Adjustments
 
Unrealized Gain (Loss) on Available-For-Sale Securities
 
Total
For the Three Months Ended September 26, 2014:
 
 
 
 
 
 
 
Balance, June 27, 2014
$
465.1

 
$
(364.2
)
 
$
204.9

 
$
305.8

Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
Decrease
(670.5
)
 

 
(26.0
)
 
(696.5
)
Income tax impact

 

 
9.8

 
9.8

Other comprehensive loss before reclassifications, net of income taxes
(670.5
)
 

 
(16.2
)
 
(686.7
)
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 

Increase (decrease)

 
6.0

(1)
(4.3
)
(2)
1.7

Income tax impact

 
(2.2
)
 
1.6

 
(0.6
)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes

 
3.8

 
(2.7
)
 
1.1

Net current period other comprehensive (loss) income, net of income taxes
(670.5
)
 
3.8

 
(18.9
)
 
(685.6
)
Balance, September 26, 2014
$
(205.4
)
 
$
(360.4
)
 
$
186.0

 
$
(379.8
)
For the Nine Months Ended October 2, 2015:
 
 
 
 
 
 
 
Balance, December 31, 2014
$
(821.8
)
 
$
(727.8
)
 
$
115.9

 
$
(1,433.7
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
(Decrease) increase
(793.7
)
 
12.4

 
5.4

 
(775.9
)
Income tax impact

 
(2.8
)
 
(2.0
)
 
(4.8
)
Other comprehensive (loss) income before reclassifications, net of income taxes
(793.7
)
 
9.6

 
3.4

 
(780.7
)
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
Increase (decrease)

 
33.8

(1)
(12.4
)
(2)
21.4

Income tax impact

 
(10.6
)
 
4.6

 
(6.0
)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes

 
23.2

 
(7.8
)
 
15.4

Net current period other comprehensive (loss) income, net of income taxes
(793.7
)
 
32.8

 
(4.4
)
 
(765.3
)
Balance, October 2, 2015
$
(1,615.5
)
 
$
(695.0
)
 
$
111.5

 
$
(2,199.0
)
For the Nine Months Ended September 26, 2014:
 
 
 
 
 
 
 
Balance, December 31, 2013
$
413.2

 
$
(366.7
)
 
$
168.0

 
$
214.5

Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
(Decrease) increase
(618.6
)
 
(5.5
)
 
52.3

 
(571.8
)
Income tax impact

 
1.1

 
(19.6
)
 
(18.5
)
Other comprehensive (loss) income before reclassifications, net of income taxes
(618.6
)
 
(4.4
)
 
32.7

 
(590.3
)
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
Increase (decrease)

 
16.7

(1)
(23.5
)
(2)
(6.8
)
Income tax impact

 
(6.0
)
 
8.8

 
2.8

Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes

 
10.7

 
(14.7
)
 
(4.0
)
Net current period other comprehensive (loss) income, net of income taxes
(618.6
)
 
6.3

 
18.0

 
(594.3
)
Balance, September 26, 2014
$
(205.4
)
 
$
(360.4
)
 
$
186.0

 
$
(379.8
)
 
 
 
 
 
 
 
 
(1)  This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Note 7 for additional details).
(2)  Included in other income in the accompanying Consolidated Condensed Statement of Earnings. Refer to Note 10 for additional details.

7


New Accounting Standards - In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU is effective for annual and interim periods beginning after December 15, 2015 but the Company has chosen to early adopt the standard and has applied the guidance to all 2015 debt issuances. The Company did not retrospectively apply this guidance to debt offerings prior to 2015 as the impact to the financial statements was not material.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which impacts virtually all aspects of an entity's revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date of the standard by one year which results in the new standard being effective for the Company at the beginning of its first quarter of fiscal year 2018. Management has not yet completed its assessment of the impact of the new standard, including possible transition alternatives, on the Company's financial statements.

NOTE 2. ACQUISITIONS
For a description of the Company’s acquisition activity for the year ended December 31, 2014, reference is made to the financial statements as of and for the year ended December 31, 2014 and Note 2 thereto included in the Company’s 2014 Annual Report on Form 10-K.
The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. The Company has completed a number of acquisitions that 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 processes by which the Company acquired the businesses, avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company's existing product offerings to key target markets and enter into new and profitable businesses, 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 value of the acquired assets and assumed 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, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with certain of its 2015 and 2014 acquisitions and is also in the process of obtaining valuations of certain property, plant and equipment, acquired intangible assets and certain acquisition related liabilities in connection with these acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. The Company evaluated whether any adjustments to the prior periods' purchase price allocations were material and concluded no retrospective adjustment to prior period financial statements was required.
On August 31, 2015, Pentagon Merger Sub, Inc., a New York corporation and an indirect, wholly-owned subsidiary of the Company, acquired all of the outstanding shares of common stock of Pall Corporation (“Pall”), a New York corporation, for $127.20 per share in cash, for a total purchase price of approximately $13.6 billion, net of assumed debt of $417 million and acquired cash of approximately $1.2 billion (the “Pall Acquisition”). Pall is a leading global provider of filtration, separation and purification solutions that remove contaminants or separate substances from a variety of solids, liquids and gases, and is now part of the Company’s Life Sciences & Diagnostics segment. In its fiscal year ended July 31, 2015, Pall generated consolidated revenues of approximately $2.8 billion. Pall serves customers in the biopharmaceutical, food and beverage and medical markets as well as the process technologies, aerospace and microelectronics markets. The Pall Acquisition provides additional sales and earnings growth opportunities for the Company by expanding geographic and product line diversity, including new product and service offerings in the areas of filtration, separation and purification, and through the potential acquisition of complementary businesses. As Pall is integrated into the Company, the Company also expects to realize significant cost synergies through the application of the Danaher Business System and the combined purchasing power of the Company and Pall. The Company preliminarily recorded an aggregate of $9.4 billion of goodwill related to the Pall Acquisition.

8


The Company financed the approximately $13.6 billion acquisition price of Pall with approximately $2.5 billion of available cash, approximately $8.1 billion of net proceeds from the issuance and sale of U.S. dollar and Euro-denominated commercial paper and €2.7 billion (approximately $3.0 billion based on currency exchange rates as of the date of issuance) of net proceeds from the issuance and sale of Euro-denominated senior unsecured notes. Subsequent to the Pall Acquisition, the Company used the approximately $2.0 billion of net proceeds from the issuance of U.S. dollar-denominated senior unsecured notes to repay a portion of the commercial paper issued to finance a portion of the Pall Acquisition.
In addition to the Pall Acquisition, during the first nine months of 2015, the Company acquired eight other businesses for total consideration of $632 million in cash, net of cash acquired. The businesses acquired complement existing units of the Environmental, Life Sciences & Diagnostics, Dental and Industrial Technologies segments. The aggregate annual sales of these eight 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 approximately $332 million. The Company preliminarily recorded an aggregate of $255 million of goodwill related to these acquisitions.
The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the nine months ended October 2, 2015 ($ in millions):
 
Pall
 
Others
 
Total
Trade accounts receivable
$
514.3

 
$
73.9

 
$
588.2

Inventories
481.2

 
37.8

 
519.0

Property, plant and equipment
671.3

 
26.4

 
697.7

Goodwill
9,440.4

 
254.8

 
9,695.2

Other intangible assets, primarily customer relationships, trade names and technology
4,980.0

 
235.3

 
5,215.3

Trade accounts payable
(155.0
)
 
(22.1
)
 
(177.1
)
Other assets and liabilities, net
(1,892.7
)
 
25.9

 
(1,866.8
)
Assumed debt
(417.0
)
 
(0.1
)
 
(417.1
)
Net assets acquired
13,622.5

 
631.9

 
14,254.4

Less: non-cash consideration
(47.3
)
 

 
(47.3
)
Net cash consideration
$
13,575.2

 
$
631.9

 
$
14,207.1

Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the 2015 and 2014 acquisitions as if they had occurred as of January 1, 2014. 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 ($ in millions, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Sales
$
5,479.7

 
$
5,710.8

 
$
16,560.3

 
$
16,974.9

Net earnings from continuing operations
647.6

 
697.2

 
1,967.0

 
1,866.7

Diluted net earnings per share from continuing operations
0.93

 
0.97

 
2.76

 
2.61

The 2015 unaudited pro forma earnings set forth above were adjusted to include the impact of non-recurring acquisition date fair value adjustments to inventory related to the Pall Acquisition of $21 million pre-tax and exclude the impact of the Nobel Biocare acquisition date fair value adjustments of $27 million pre-tax. The 2014 unaudited pro forma earnings set forth above were adjusted to include the impact of non-recurring acquisition date fair value adjustments to inventory related to the Nobel Biocare acquisition as noted above.
In addition, the acquisition-related transaction costs and change in control payments of approximately $47 million associated with the Pall Acquisition were excluded from pro forma earnings in each of the 2015 and 2014 periods presented.


9


NOTE 3. DISCONTINUED OPERATIONS, DANAHER SEPARATION AND OTHER DISPOSITION
Discontinued Operations
On July 14, 2015, the Company consummated the split-off of the majority of its Test & Measurement segment's communications business (other than the data communications cable installation business and the communication service provider business of Fluke Networks which are now part of the instruments business of the Company's Test & Measurement segment) to Danaher shareholders who elected to exchange Danaher shares for ownership interests in the communications business, and the subsequent merger of the communications business with a subsidiary of NetScout Systems, Inc. (“NetScout”). Danaher shareholders who participated in the exchange offer tendered 26.0 million shares of Danaher common stock, (approximately $2.3 billion on the date of tender) and received 62.5 million shares of NetScout common stock which represented approximately 60% of the shares of NetScout common stock outstanding following the combination.
The accounting requirements for reporting the disposition of the communications business as a discontinued operation were met when the separation and merger were completed. Accordingly, the accompanying consolidated financial statements for all periods presented reflect this business as discontinued operations. The Company allocated a portion of the consolidated interest expense to discontinued operations based on the ratio of the discontinued business' net assets to the Company's consolidated net assets. The Company recorded an aggregate after-tax gain on the disposition of this business of $813 million, or $1.16 per diluted share, in its third quarter 2015 results in connection with the closing of this transaction representing the value of the 26.0 million shares tendered for the communications business in excess of the carrying value of the business' net assets. The communications business had revenues of approximately $346 million in 2015 prior to the disposition and approximately $760 million in 2014. Operating results prior to the disposition during the three month period ended October 2, 2015 were not significant and are reflected as a component of the gain on disposition.
The key components of income from discontinued operations were as follows ($ in millions):
 
Three Months Ended
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Net sales
$

 
$
163.2

 
$
345.7

 
$
566.8

Operating expenses

 
(163.6
)
 
(329.7
)
 
(502.6
)
Allocated interest expense

 
(0.9
)
 
(1.8
)
 
(2.8
)
Income before taxes

 
(1.3
)
 
14.2

 
61.4

Income tax (benefit) expense

 
0.6

 
(22.2
)
 
(18.3
)
(Loss) income from discontinued operations

 
(0.7
)
 
(8.0
)
 
43.1

Gain on disposition, including $6.2 of related income tax benefit
813.3

 

 
813.3

 

Earnings from discontinued operations, net of income taxes
$
813.3

 
$
(0.7
)
 
$
805.3

 
$
43.1

The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company's balance sheet ($ in millions):
 
October 2, 2015
 
December 31, 2014
Assets:
 
 
 
Accounts receivable, net
$

 
$
188.1

Inventories

 
48.7

Prepaid expenses and other

 
14.9

Property, plant and equipment

 
31.1

Goodwill and other intangibles, net

 
1,600.7

Total assets, discontinued operations
$

 
$
1,883.5

Liabilities:
 
 
 
Trade accounts payable
$

 
$
50.0

Accrued expenses and other liabilities
42.4

 
417.6

Total liabilities, discontinued operations
$
42.4

 
$
467.6


10


The Company has an ongoing Transition Services Agreement (“TSA”) with NetScout under which the Company will provide NetScout with certain transition services for up to 12 months following the closing date of the disposition. These services include finance & accounting, information technology, payroll processing, and other administrative services as well as certain manufacturing, supply chain, and selling activities for a portion of the transferred businesses.
Danaher Separation
On May 13, 2015, the Company announced its intention to separate into two independent publicly traded companies (the “Separation”). Consummation of the Separation will create:
a science and technology company (“New Danaher”) that will retain the Danaher name and include businesses that generated approximately $16.5 billion in revenues (adjusted to include the revenues of Pall - refer to Note 2), in their most recently completed fiscal year; and
a diversified industrial company (“NewCo”) that will include businesses that generated approximately $6.0 billion in revenues in their most recently completed fiscal year.
The transaction is expected to occur through a tax-free separation. The Company is targeting to complete the Separation in 2016, subject to the satisfaction of certain conditions, including obtaining final approval from the Danaher Board of Directors, satisfactory completion of financing, receipt of tax opinions, receipt of favorable rulings from the Internal Revenue Service and receipt of other regulatory approvals.
Other Disposition
Refer to Note 10 for information related to the $34 million gain on the Company's divestiture of its electric vehicle systems (“EVS”)/hybrid product line in the third quarter of 2014.

NOTE 4. GOODWILL
The following is a rollforward of the Company’s goodwill ($ in millions):
Balance, December 31, 2014
$
15,673.2

Attributable to 2015 acquisitions
9,695.2

Foreign currency translation & other
(239.7
)
Balance, October 2, 2015
$
25,128.7

The carrying value of goodwill by segment is summarized as follows ($ in millions):
 
October 2, 2015
 
December 31, 2014
Test & Measurement
$
1,930.3

 
$
1,947.4

Environmental
1,925.7

 
1,937.3

Life Sciences & Diagnostics
15,772.8

 
6,345.2

Dental
3,253.3

 
3,142.9

Industrial Technologies
2,246.6

 
2,300.4

Total goodwill
$
25,128.7

 
$
15,673.2

The Company has not identified any “triggering” events which indicate a potential impairment of goodwill in 2015.

NOTE 5. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where the Company’s assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation. Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset or liability’s

11


classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
A summary of financial assets and liabilities that are measured at fair value on a recurring basis were as follows ($ in millions):
 
Quoted Prices in Active Market (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total
October 2, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
307.0

 
$

 
$

 
$
307.0

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plans

 
74.7

 

 
74.7

December 31, 2014:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
257.5

 
$

 
$

 
$
257.5

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plans

 
73.1

 

 
73.1

Available-for-sale securities are measured at fair value using quoted market prices in an active market and are included in other long-term assets in the accompanying Consolidated Condensed Balance Sheets.
The Company has established nonqualified deferred compensation programs that permit officers, directors and certain management employees to defer a portion of their compensation, on a pre-tax basis, until their termination of employment (or board service, as applicable). All amounts deferred under such plans are unfunded, unsecured obligations of the Company and are presented as a component of the Company’s compensation and benefits accrual included in other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Participants may choose among alternative earning rates for the amounts they defer, which are primarily based on investment options within the Company’s 401(k) program (except that the earnings rates for amounts deferred by the Company’s directors and amounts contributed unilaterally by the Company are entirely based on changes in the value of the Company’s common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Fair Value of Financial Instruments
The carrying amounts and fair values of financial instruments were as follows ($ in millions):
 
October 2, 2015
 
December 31, 2014
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
307.0

 
$
307.0

 
$
257.5

 
$
257.5

Liabilities:
 
 
 
 
 
 
 
Short-term borrowings
3,489.3

 
3,489.3

 
71.9

 
71.9

Long-term borrowings
11,522.7

 
11,937.4

 
3,401.5

 
3,809.1

As of October 2, 2015 and December 31, 2014, available-for-sale securities and short and long-term borrowings were categorized as Level 1.
The fair value of long-term borrowings was based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings (other than the Company’s Liquid Yield Option Notes due 2021 (the “LYONs”)) is attributable to changes in market interest rates and/or the Company’s credit ratings subsequent to the incurrence of the borrowing. In the case of the LYONs, differences in the fair value from the carrying value are attributable to changes in the price of the Company’s common stock due to the LYONs' conversion features. The fair values of short-term borrowings, as well as cash and cash equivalents, trade accounts receivable, net and trade accounts payable approximate their carrying amounts due to the short-term maturities of these instruments.

12



NOTE 6. FINANCING
The components of the Company’s debt were as follows ($ in millions):
 
October 2, 2015
 
December 31, 2014
U.S. dollar-denominated commercial paper
$
3,643.3

 
$
450.0

Euro-denominated commercial paper (€2.8 billion and €260 million, respectively)
3,196.0

 
314.6

2.3% senior unsecured notes due 2016
500.0

 
500.0

4.0% bonds due 2016 (CHF 120 million aggregate principal amount)
131.3

 
129.9

Floating rate senior unsecured notes due 2017 (€500 million aggregate principal amount)
562.1

 

1.65% senior unsecured notes due 2018
496.8

 

5.625% senior unsecured notes due 2018
500.0

 
500.0

1.0% senior unsecured notes due 2019 (€600 million aggregate principal amount)
671.8

 

5.4% senior unsecured notes due 2019
750.0

 
750.0

2.4% senior unsecured notes due 2020
495.8

 

5.0% senior notes due 2020
416.5

 

Zero-coupon LYONs due 2021
75.6

 
110.6

3.9% senior unsecured notes due 2021
600.0

 
600.0

1.7% senior unsecured notes due 2022 (€800 million aggregate principal amount)
894.5

 

2.5% senior unsecured notes due 2025 (€800 million aggregate principal amount)
895.8

 

3.35% senior unsecured notes due 2025
501.1

 

4.375% senior unsecured notes due 2045
493.5

 

Other
187.9

 
118.3

Subtotal
15,012.0

 
3,473.4

Less: currently payable
3,489.3

 
71.9

Long-term debt
$
11,522.7

 
$
3,401.5

For a full description of the Company’s debt financing, reference is made to Note 9 of the Company’s financial statements as of and for the year ended December 31, 2014 included in the Company’s 2014 Annual Report on Form 10-K.
In addition to the Credit Facilities discussed below, the Company has also entered into reimbursement agreements with various commercial banks to support the issuance of letters of credit.
The Company satisfies any short-term liquidity needs that are not met through operating cash flow and available cash primarily through issuances of commercial paper under its U.S. and Euro commercial paper programs, as further discussed below.
Financing for the Pall Acquisition
The Company financed the approximately $13.6 billion acquisition price of Pall with approximately $2.5 billion of available cash, approximately $8.1 billion of net proceeds from the issuance and sale of U.S. dollar and Euro-denominated commercial paper and approximately $3.0 billion of net proceeds from the issuance and sale of the Euronotes (described below). Subsequent to the Pall Acquisition, the Company issued the Notes (described below) and used the approximately $2.0 billion of net proceeds from the issuance of the Notes to repay a portion of the commercial paper issued to finance a portion of the Pall Acquisition. Further details regarding the financing for the Pall Acquisition are set forth below.
Commercial Paper Programs and Credit Facility
On July 10, 2015, the Company expanded the aggregate capacity of its U.S. and Euro commercial paper programs to $11.0 billion and expanded its credit facility borrowing capacity to $11.0 billion to provide liquidity support for issuances under such programs. The Company replaced its existing $2.5 billion unsecured multi-year revolving credit facility (the “Superseded Credit Facility”) with an amended and restated $4.0 billion unsecured multi-year revolving credit facility with a syndicate of banks that expires on July 10, 2020, subject to a one-year extension option at the request of the Company with the consent of

13


the lenders (the “5-Year Credit Facility”), and entered into a new $7.0 billion 364-day unsecured revolving credit facility with a syndicate of banks that expires on July 8, 2016, subject to the Company’s option to convert any then-outstanding borrowings into term loans that are due and payable one year following such expiration date (the “364-Day Facility” and together with the 5-Year Credit Facility, the “Credit Facilities”). Effective as of October 15, 2015, the Company reduced the commitment amount under the 364-Day Facility from $7.0 billion to $4.0 billion, as permitted by the 364-Day Facility, and the capacity under the Company’s U.S. and Euro commercial paper programs effectively decreased by the same amount.
The increase in the size of the Company’s commercial paper programs provided necessary capacity for the Company to use proceeds from the issuance of commercial paper to fund a portion of the purchase price for the Pall Acquisition. 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. Interest expense on the notes is paid at maturity and is generally based on the ratings assigned to the Company by credit rating agencies at the time of the issuance and prevailing market rates measured by reference to LIBOR. The Credit Facilities provide liquidity support for issuances under the Company’s commercial paper programs, and can also be used for working capital and other general corporate purposes. The availability of the Credit Facilities as standby liquidity facilities to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Company’s commercial paper programs. The Company expects to limit any borrowings under the Credit Facilities to amounts that would leave sufficient available borrowing capacity under such facilities to allow the Company to borrow, if needed, to repay all of the outstanding commercial paper as it matures. As commercial paper obligations mature, the Company may issue additional short-term commercial paper obligations to refinance all or part of these borrowings. As of October 2, 2015, borrowings outstanding under the Company’s U.S. and Euro commercial paper programs had a weighted average annual interest rate of 0.2% and a weighted average remaining maturity of approximately 36 days. The Company has classified $4.0 billion of its borrowings outstanding under the commercial paper programs as of October 2, 2015 as long-term debt in the accompanying Consolidated Condensed Balance Sheet as the Company has the intent and ability, as supported by availability under the 5-Year Credit Facility referenced above, to refinance these borrowings for at least one year from the balance sheet date.
Under the Credit Facilities, borrowings (other than bid loans under the 5-Year Credit Facility) bear interest at a rate equal to (at the Company’s option) either (1) a LIBOR-based rate (the “LIBOR-Based Rate”), or (2) the highest of (a) the Federal funds rate plus 1/2 of 1%, (b) the prime rate and (c) the LIBOR-Based Rate plus 1%, plus in each case a margin that, in the case of the 5-Year Credit Facility, varies according to the Company’s long-term debt credit rating. In addition to certain initial fees the Company paid with respect to the 5-Year Credit Facility at inception of the facility, the Company is obligated to pay an annual commitment or facility fee under each Credit Facility that, in the case of the 5-Year Credit Facility, varies according to the Company’s long-term debt credit rating. Each of the Credit Facilities requires the Company to maintain a consolidated leverage ratio (as defined in the respective facility) of 0.65 to 1.00 or less, and also contains customary representations, warranties, conditions precedent, events of default, indemnities and affirmative and negative covenants. As of October 2, 2015, no borrowings were outstanding under either of the Credit Facilities and the Company was in compliance with all covenants under each facility.
Other Long-Term Indebtedness
On July 8, 2015, DH Europe Finance S.A., a wholly-owned finance subsidiary of the Company, completed the underwritten public offering of each of the following series of Euro-denominated senior unsecured notes (collectively, the “Euronotes”):
€500 million aggregate principal amount of floating rate senior notes due 2017 (the “2017 Euronotes”). The 2017 Euronotes were issued at 100% of their principal amount, will mature on June 30, 2017 and bear interest at a floating rate equal to three-month EURIBOR plus 0.45% per year.
€600 million aggregate principal amount of 1.0% senior notes due 2019 (the “2019 Euronotes”). The 2019 Euronotes were issued at 99.696% of their principal amount, will mature on July 8, 2019 and bear interest at the rate of 1.0% per year.
€800 million aggregate principal amount of 1.7% senior notes due 2022 (the “2022 Euronotes”). The 2022 Euronotes were issued at 99.651% of their principal amount, will mature on January 4, 2022 and bear interest at the rate of 1.7% per year.
€800 million aggregate principal amount of 2.5% senior notes due 2025 (the “2025 Euronotes”). The 2025 Euronotes were issued at 99.878% of their principal amount, will mature on July 8, 2025 and bear interest at the rate of 2.5% per year.
The Euronotes are fully and unconditionally guaranteed by the Company. The Company received net proceeds, after underwriting discounts and commissions and offering expenses, of approximately €2.7 billion (approximately $3.0 billion

14


based on currency exchange rates as of the date of issuance) and used the net proceeds from the offering to pay a portion of the purchase price for the Pall Acquisition. Interest on the Euronotes is payable: on the floating rate notes quarterly in arrears on March 30, June 30, September 30 and December 30 of each year, commencing on September 30, 2015; on the 2019 Notes and 2025 Notes annually in arrears on July 8 of each year, commencing on July 8, 2016; and on the 2022 Notes annually in arrears on January 4 of each year, commencing on January 4, 2016.
On September 15, 2015, the Company completed the underwritten public offering of each of the following series of senior unsecured notes (collectively, the “Notes”):
$500 million aggregate principal amount of 1.650% senior notes due 2018 (the “2018 Notes”). The 2018 Notes were issued at 99.866% of their principal amount, will mature on September 15, 2018 and bear interest at the rate of 1.650% per year.
$500 million aggregate principal amount of 2.400% senior notes due 2020 (the “2020 Notes”). The 2020 Notes were issued at 99.757% of their principal amount, will mature on September 15, 2020 and bear interest at the rate of 2.400% per year.
$500 million aggregate principal amount of 3.350% senior notes due 2025 (the “2025 Notes”). The 2025 Notes were issued at 99.857% of their principal amount, will mature on September 15, 2025 and bear interest at the rate of 3.350% per year.
$500 million aggregate principal amount of 4.375% senior notes due 2045 (the “2045 Notes”). The 2045 Notes were issued at 99.784% of their principal amount, will mature on September 15, 2045 and bear interest at the rate of 4.375% per year.
The Company received net proceeds, after underwriting discounts and commissions and offering expenses, of approximately $2.0 billion and used the net proceeds from the offering to repay a portion of the commercial paper issued to pay a portion of the purchase price for the Pall Acquisition. Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2016.
Debt discounts and debt issuance costs totaled $13 million as of October 2, 2015 and have been netted against the aggregate principal amounts of the related debt in the components of debt table above. As discussed in Note 1, the Company did not reclassify debt issuance costs to be netted against the related debt liability for debt offerings prior to 2015 as the impact to the financial statements was not material.
Covenants and Redemption Provisions Applicable to the Euronotes and Notes
At any time prior to September 15, 2018 (the maturity date of the 2018 Notes) in the case of the 2018 Notes, April 8, 2019 (three months prior to the maturity date of the 2019 Euronotes), in the case of the 2019 Euronotes, August 15, 2020 (one month prior to the maturity date of the 2020 Notes) in the case of the 2020 Notes, January 4, 2022 (the maturity date of the 2022 Euronotes), in the case of the 2022 Euronotes, June 15, 2025 (three months prior to the maturity date of the 2025 Notes) in the case of the 2025 Notes, April 8, 2025 (three months prior to the maturity date of the 2025 Euronotes), in the case of the 2025 Euronotes, or March 15, 2045 (six months prior to the maturity date of the 2045 Notes) in the case of the 2045 Notes, the Company may redeem the applicable series of Notes or Euronotes, as applicable, in whole or in part, by paying the principal amount and the “make-whole” premium specified in the applicable indenture, plus accrued and unpaid interest. If a change of control triggering event occurs with respect to the Notes or the Euronotes, each holder of such notes may require the Company to repurchase some or all of such notes at a purchase price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest. A change of control triggering event means the occurrence of both a change of control and a rating event, each as defined in the applicable indenture. Except in connection with a change of control triggering event, the Company does not have any credit rating downgrade triggers that would accelerate the maturity of a material amount of outstanding debt.
The respective indentures under which the Notes and Euronotes were issued 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 October 2, 2015 the Company was in compliance with all of its debt covenants.
In addition, in connection with the Pall Acquisition, the Company acquired senior unsecured notes previously issued by Pall (the “Pall Notes”) with an aggregate principal amount of $375 million and a stated interest rate of 5.0% per year. In accordance with accounting for business combinations, the Pall Notes were recorded at their fair value of $417 million on the date of acquisition and for accounting purposes, interest charges on these notes recorded in the Company's statement of earnings reflect an effective interest rate of approximately 2.9% per year. The Company will pay interest on the Pall Notes semi-annually in

15


arrears on June 15 and December 15 of each year (based on the stated 5.0% interest rate). The Pall Notes mature on June 15, 2020. Effective as of September 18, 2015, the Company had fully and unconditionally guaranteed the Pall Notes.
Other Indebtedness
During the three and nine months ended October 2, 2015, holders of certain of the Company’s LYONs converted such LYONs into an aggregate of approximately 51 thousand and 1.2 million shares of the Company’s common stock, respectively, par value $0.01 per share. The Company’s deferred tax liability associated with the book and tax basis difference in the converted LYONs of approximately $670 thousand and $15 million, respectively, was transferred to additional paid-in capital as a result of the conversions.

NOTE 7. DEFINED BENEFIT PLANS
In connection with the Pall Acquisition, the Company acquired assets and liabilities associated with Pall's existing U.S. and non-U.S. retirement plans. The following sets forth the funded position of the acquired plans as of August 31, 2015 ($ in millions):
 
Pension Plans
 
Other Post-Retirement Plans
Pall Pension and Other Post-Retirement Plans
U.S.
 
Non-U.S.
 
Estimated benefit obligation
$
(300.1
)
 
$
(434.0
)
 
$
(5.0
)
Fair value of plan assets
152.6

 
356.7

 

Funded status
$
(147.5
)
 
$
(77.3
)
 
$
(5.0
)
The following sets forth the components of the Company’s continuing operations net periodic benefit cost of the noncontributory defined benefit pension plans ($ in millions):
 
Three Months Ended
 
Nine Months Ended
U.S. Pension Benefits
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Service cost
$
2.4

 
$
1.5

 
$
5.4

 
$
4.5

Interest cost
25.3

 
26.4

 
73.9

 
79.4

Expected return on plan assets
(34.0
)
 
(32.1
)
 
(100.2
)
 
(96.7
)
Amortization of actuarial loss
7.9

 
4.6

 
20.9

 
13.8

Net periodic pension cost
$
1.6


$
0.4


$


$
1.0

 
 
 
 
 
 
 
 
Non-U.S. Pension Benefits
 
 
 
 
 
 
 
Service cost
$
11.6

 
$
7.6

 
$
34.3

 
$
23.4

Interest cost
9.7

 
11.5

 
27.0

 
34.9

Expected return on plan assets
(10.9
)
 
(10.5
)
 
(29.9
)
 
(31.6
)
Amortization of actuarial loss
4.3

 
1.7

 
12.8

 
5.2

Amortization of prior service credit

 

 
(0.1
)
 

Settlement loss recognized
1.9

 

 
1.4

 

Net periodic pension cost
$
16.6

 
$
10.3

 
$
45.5

 
$
31.9

The following sets forth the components of the Company’s continuing operations net periodic benefit cost of the other post-retirement employee benefit plans ($ in millions): 
 
Three Months Ended
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Service cost
$
0.3

 
$
0.2

 
$
0.9

 
$
0.8

Interest cost
1.8

 
2.6

 
5.8

 
6.8

Amortization of actuarial (gain) loss
(0.2
)
 
(1.0
)
 
1.2

 
(3.0
)
Amortization of prior service credit
(0.8
)
 
0.7

 
(2.4
)
 
0.7

Net periodic benefit cost
$
1.1

 
$
2.5

 
$
5.5

 
$
5.3


16


Net periodic pension and benefit costs are included in cost of sales and selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings.
Employer Contributions
During 2015, the Company’s cash contribution requirements for its U.S. and non-U.S. defined benefit pension plans are expected to be approximately $45 million and $55 million, respectively. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.

NOTE 8. INCOME TAXES
The Company’s effective tax rate from continuing operations for the three and nine months ended October 2, 2015 was 23.2% and 22.5%, respectively, as compared to 22.4% and 22.9% for the three and nine months ended September 26, 2014, respectively.
The Company's effective tax rate for 2015 and 2014 differs from the U.S. federal statutory rate of 35.0% due principally to the Company’s earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate. The effective tax rate for the nine months ended October 2, 2015 reflects net tax benefits from releases of valuation allowances related to foreign operating losses, foreign exchange losses and expiration of statutes of limitation which resulted in discrete tax benefits of $16 million ($0.02 per share) during the nine months ended October 2, 2015. The effective tax rate for the three and nine months ended September 26, 2014 includes tax benefits in foreign tax jurisdictions for release of valuation allowances and expiration of statutes of limitation, partially offset by audit settlements in various tax jurisdictions.
Tax authorities in Denmark have raised significant issues related to interest accrued by certain of the Company's subsidiaries. On December 10, 2013, the Company received assessments from the Danish tax authority (“SKAT”) totaling approximately DKK 1.2 billion including interest through October 2, 2015 (approximately $172 million based on exchange rates as of October 2, 2015), imposing withholding tax relating to interest accrued in Denmark on borrowings from certain of the Company's subsidiaries for the years 2004-2009. If the SKAT claims are successful, it is likely that the Company would be assessed additional amounts for the years 2010-2012 totaling approximately DKK 688 million including interest through October 2, 2015 (approximately $104 million based on exchange rates as of October 2, 2015). Management believes the positions the Company has taken in Denmark are in accordance with the relevant tax laws and intends to vigorously defend its positions. The Company appealed these assessments with the National Tax Tribunal in 2014 and intends on pursuing this matter through the European Court of Justice should this appeal be unsuccessful. The ultimate resolution of this matter is uncertain, could take many years, and could result in a material adverse impact to the Company's financial statements, including its effective tax rate.

NOTE 9. STOCK TRANSACTIONS AND STOCK-BASED COMPENSATION
Except in connection with the disposition of the Company's communications business to NetScout, neither the Company nor any “affiliated purchaser” repurchased any shares of Company common stock during the three or nine months ended October 2, 2015. Refer to Note 3 for discussion of the 26.0 million shares of Danaher common stock tendered to and repurchased by the Company in connection with the disposition of the Company's communications business to NetScout. On July 16, 2013, the Company's Board of Directors approved a repurchase program (the “Repurchase Program”) authorizing the repurchase of up to 20 million shares of the Company's common stock from time to time on the open market or in privately negotiated transactions. As of October 2, 2015, 20 million shares remained available for repurchase pursuant to the Repurchase Program.
For a full description of the Company’s stock-based compensation programs, reference is made to Note 17 of the Company’s financial statements as of and for the year ended December 31, 2014 included in the Company’s 2014 Annual Report on Form 10-K. As of October 2, 2015, approximately 22 million shares of the Company’s common stock were reserved for issuance under the 2007 Stock Incentive Plan.
In 2015, the Company introduced into its executive equity compensation program performance stock units (“PSUs”) that vest based on the Company’s total shareholder return ranking relative to the S&P 500 Index over a three-year performance period. As a result, effective in 2015 one-half of the annual equity awards granted to the Company's executive officers are granted as stock options, one-quarter are granted as restricted stock units (“RSUs”) and one-quarter are granted as PSUs. The PSUs are issued under the Company's 2007 Stock Incentive Plan.
In connection with the Pall Acquisition, the Company assumed certain outstanding RSUs that had been awarded to Pall employees under the Pall 2012 Stock Compensation Plan. The shares of Pall common stock issuable under such RSUs have been replaced with shares of Danaher common stock based on the exchange ratio used in the acquisition transaction. The Pall

17


2012 Stock Compensation Plan operates in a similar manner to the Company’s 2007 Stock Incentive Plan. No further equity awards will be issued under the Pall 2012 Stock Compensation Plan.
The following summarizes the assumptions used in the Black-Scholes Merton option pricing model (“Black-Scholes”) to value options granted during the nine months ended October 2, 2015:
Risk-free interest rate
1.6% - 2.2%

Weighted average volatility
24.4
%
Dividend yield
0.6
%
Expected years until exercise
5.5 - 8.0

The following summarizes the components of the Company’s continuing operations stock-based compensation expense ($ in millions):
 
Three Months Ended
 
Nine Months Ended
 
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
RSUs/PSUs:
 
 
 
 
 
 
 
Pre-tax compensation expense
$
29.3

 
$
19.9

 
$
65.1

 
$
51.3

Income tax benefit
(10.5
)
 
(6.0
)
 
(22.3
)
 
(14.9
)
RSU/PSU expense, net of income taxes
18.8

 
13.9

 
42.8

 
36.4

Stock options:
 
 
 
 
 
 
 
Pre-tax compensation expense
13.4

 
12.0

 
36.1

 
31.7

Income tax benefit
(4.3
)
 
(3.7
)
 
(11.6
)
 
(9.5
)
Stock option expense, net of income taxes
9.1

 
8.3

 
24.5

 
22.2

Total stock-based compensation:
 
 
 
 
 
 
 
Pre-tax compensation expense
42.7

 
31.9

 
101.2

 
83.0

Income tax benefit
(14.8
)
 
(9.7
)
 
(33.9
)
 
(24.4
)
Total stock-based compensation expense, net of income taxes
$
27.9

 
$
22.2

 
$
67.3

 
$
58.6

Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings. As of October 2, 2015, $187 million of total unrecognized compensation cost related to RSUs/PSUs is expected to be recognized over a weighted average period of approximately three years. As of October 2, 2015, $141 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately three years. Future compensation amounts will be adjusted for any changes in estimated forfeitures.

18


The following summarizes option activity under the Company’s stock plans (in millions, except weighted exercise price and number of years):
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value
Outstanding as of December 31, 2014
24.3

 
$
48.92

 
 
 
 
Granted
3.1

 
87.79

 
 
 
 
Exercised
(5.0
)
 
36.39

 
 
 
 
Cancelled/forfeited
(1.0
)
 
66.64

 
 
 
 
Outstanding as of October 2, 2015
21.4

 
$
56.65

 
6
 
$
645.6

Vested and expected to vest as of October 2, 2015 (1)
20.2

 
$
55.73

 
6
 
$
626.7

Vested as of October 2, 2015
11.0

 
$
42.34

 
4
 
$
485.8

(1) 
The “Expected to vest” options are the net unvested options that remain after applying the forfeiture rate assumption to total unvested options.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of 2015 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 October 2, 2015. The amount of aggregate intrinsic value will change based on the price of the Company’s common stock.
The aggregate intrinsic value of options exercised during the nine months ended October 2, 2015 and September 26, 2014 was $245 million and $95 million, respectively. Exercise of options during the first nine months of 2015 and 2014 resulted in cash receipts of $169 million and $79 million, respectively. The Company realized a tax benefit of $27 million and $79 million in the three and nine months ended October 2, 2015, respectively, related to the exercise of employee stock options. The net income tax benefit in excess of the expense recorded for financial reporting purposes (the “excess tax benefit”) has been recorded as an increase to additional paid-in capital and is reflected as a financing cash inflow in the accompanying Consolidated Condensed Statements of Cash Flows.
The following summarizes information on unvested RSU and PSU activity (in millions, except weighted average grant-date fair value):
 
Number of RSUs/PSUs
 
Weighted Average Grant-Date  Fair Value
Unvested as of December 31, 2014
4.9

 
$
61.64

Granted
2.0

 
86.68

Vested
(1.1
)
 
54.51

Forfeited
(0.6
)
 
67.69

Unvested as of October 2, 2015
5.2

 
$
71.99

The Company realized a tax benefit of $13 million and $34 million in the three and nine months ended October 2, 2015, respectively, related to the vesting of RSUs. The excess tax benefit attributable to RSUs has been recorded as an increase to additional paid-in capital and is reflected as a financing cash inflow in the accompanying Consolidated Condensed Statements of Cash Flows.
In connection with the exercise of certain stock options and the vesting of RSUs previously issued by the Company, a number of shares sufficient to fund statutory minimum tax withholding requirements has been withheld from the total shares issued or released to the award holder (though under the terms of the applicable plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the first nine months of 2015, 503 thousand shares with an aggregate value of $44 million were withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying Consolidated Condensed Statement of Stockholders’ Equity.


19


NOTE 10. OTHER INCOME
During the three and nine months ended October 2, 2015, the Company received $43 million of cash proceeds from the sale of marketable securities. The Company recorded a pre-tax gain related to these sales of $12 million ($8 million after-tax or $0.01 per diluted share) for the three and nine month periods.
For the three and nine months ended September 26, 2014, the Company received $6 million and $31 million, respectively, of cash proceeds from the sale of marketable securities. The Company recorded a pre-tax gain related to these sales of $4 million ($3 million after-tax) and $24 million ($15 million after-tax or $0.02 per diluted share) for the three and nine month periods, respectively.
In August 2014, the Company completed the divestiture of its EVS/hybrid product line for a sale price of $87 million in cash. This product line, which was part of the Industrial Technologies segment, had revenues of approximately $60 million in 2014 prior to the divestiture and approximately $100 million in 2013 and 2012. Operating results of the product line were not significant to segment or overall Company reported results. The Company recorded a pre-tax gain on the sale of the product line of $34 million ($26 million after-tax or $0.04 per diluted share) in its third quarter 2014 results. Subsequent to the sale, the Company has no continuing involvement in the EVS/hybrid product line.

NOTE 11. CONTINGENCIES
For a description of the Company’s litigation and contingencies, reference is made to Note 16 of the Company’s financial statements as of and for the year ended December 31, 2014 included in the Company’s 2014 Annual Report on Form 10-K.
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 accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.
The following is a rollforward of the Company’s accrued warranty liability ($ in millions):
Balance, December 31, 2014
$
137.6

Accruals for warranties issued during the period
82.6

Settlements made
(90.6
)
Additions due to acquisitions
7.1

Effect of foreign currency translation
(2.3
)
Balance, October 2, 2015
$
134.4


NOTE 12. NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Basic net earnings per share (“EPS”) from continuing operations is calculated by dividing net earnings from continuing operations by the weighted average number of common shares outstanding for the applicable period. Diluted net EPS from continuing operations is computed based on the weighted average number of common shares outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares. For the three and nine months ended October 2, 2015 approximately 2 million and 3 million options to purchase shares, respectively, were not included in the diluted EPS from continuing operations calculation as the impact of their inclusion would have been anti-dilutive. Additionally, for both the three and nine months ended September 26, 2014, approximately 1 million options to purchase shares were not included in the diluted EPS from continuing operations calculation as the impact of their inclusion would have been anti-dilutive.

20


Information related to the calculation of net earnings per share from continuing operations of common stock is summarized as follows ($ and shares in millions, except per share amounts):
 
Net Earnings from Continuing Operations
(Numerator)
 
Shares
(Denominator)
 
Per Share Amount
For the Three Months Ended October 2, 2015:
 
 
 
 
 
Basic EPS
$
590.0

 
688.5

 
$
0.86

Adjustment for interest on convertible debentures
0.5

 

 
 
Incremental shares from assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs

 
7.7

 
 
Incremental shares from assumed conversion of the convertible debentures

 
2.5

 
 
Diluted EPS
$
590.5

 
698.7

 
$
0.85

 
 
 
 
 
 
For the Three Months Ended September 26, 2014:
 
 
 
 
 
Basic EPS
$
681.3

 
702.6

 
$
0.97

Adjustment for interest on convertible debentures
0.9

 

 
 
Incremental shares from assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs

 
8.8

 
 
Incremental shares from assumed conversion of the convertible debentures

 
4.8

 
 
Diluted EPS
$
682.2

 
716.2

 
$
0.95

 
 
 
 
 
 
For the Nine Months Ended October 2, 2015:
 
 
 
 
 
Basic EPS
$
1,863.5

 
701.7

 
$
2.66

Adjustment for interest on convertible debentures
1.7

 

 
 
Incremental shares from assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs

 
7.9

 
 
Incremental shares from assumed conversion of the convertible debentures

 
2.7

 
 
Diluted EPS
$
1,865.2

 
712.3

 
$
2.62

 
 
 
 
 
 
For the Nine Months Ended September 26, 2014:
 
 
 
 
 
Basic EPS
$
1,893.6

 
701.3

 
$
2.70

Adjustment for interest on convertible debentures
2.6

 

 
 
Incremental shares from assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs

 
9.2

 
 
Incremental shares from assumed conversion of the convertible debentures

 
5.1

 
 
Diluted EPS
$
1,896.2

 
715.6

 
$
2.65


NOTE 13. SEGMENT INFORMATION
The Company operates and reports its results in five separate business segments consisting of the Test & Measurement, Environmental, Life Sciences & Diagnostics, Dental and Industrial Technologies segments. There has been no material change in total assets or liabilities by segment since December 31, 2014, except for the addition of Pall to the Life Sciences & Diagnostics segment effective August 31, 2015 (refer to Note 2) and the disposition of the communications business from the Test & Measurement segment on July 14, 2015 (refer to Note 3.)

21


Segment results are shown below ($ in millions):
 
Three Months Ended
 
Nine Months Ended
Sales:
October 2, 2015
 
September 26, 2014
 
October 2, 2015
 
September 26, 2014
Test & Measurement
$
643.5

 
$
657.8

 
$
1,997.7

 
$
1,981.7

Environmental
922.4

 
914.1

 
2,637.9

 
2,558.8

Life Sciences & Diagnostics
1,997.6

 
1,741.2

 
5,533.6

 
5,190.8

Dental
652.2

 
528.4

 
2,002.2

 
1,566.2

Industrial Technologies
807.7

 
865.6

 
2,506.9

 
2,632.3

Total
$
5,023.4

 
$
4,707.1

 
$
14,678.3

 
$
13,929.8

 
 
 
 
 
 
 
 
Operating Profit:
 
 
 
 
 
 
 
Test & Measurement
$
146.1

 
$
144.2

 
$
461.4

 
$
430.1

Environmental
202.8

 
186.2

 
564.5

 
515.6

Life Sciences & Diagnostics
214.8

 
272.8

 
716.4

 
775.2

Dental
96.8

 
91.2

 
254.2

 
244.6

Industrial Technologies
196.8

 
210.1

 
623.4

 
619.3

Other
(56.5
)
 
(38.3
)
 
(129.6
)
 
(105.0
)
Total
$
800.8

 
$
866.2

 
$
2,490.3

 
$
2,479.8

As of October 2, 2015, there were material changes in total assets by segment since December 31, 2014 due to the Pall Acquisition and the disposition of the communications business. Segment identifiable assets are shown below ($ in millions):
 
October 2, 2015
 
December 31, 2014
Test & Measurement
$
3,522.0

 
$
3,550.9

Environmental
3,821.1

 
3,824.9

Life Sciences & Diagnostics
29,928.5

 
13,743.9

Dental
5,963.9

 
6,224.3

Industrial Technologies
4,054.3

 
4,149.0

Other
2,418.1

 
3,615.2

Discontinued Operations

 
1,883.5

Total
$
49,707.9

 
$
36,991.7



22


ITEM 2. 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 Danaher Corporation’s (“Danaher,” the “Company,” “we,” “us” or “our”) financial statements with a narrative from the perspective of Company management. The Company’s MD&A is divided into four main sections:
Information Relating to Forward-Looking Statements
Overview
Results of Operations
Liquidity and Capital Resources
You should read this discussion along with the Company’s MD&A and audited financial statements as of and for the year ended December 31, 2014 and Notes thereto, included in the Company’s 2014 Annual Report on Form 10-K, and the Company's Consolidated Condensed Financial Statements and related Notes as of and for the three and nine months ended October 2, 2015 included in this Report.

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this quarterly report, in other documents we file with or furnish to the Securities and Exchange Commission (“SEC”), in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are “forward-looking statements” within the meaning of the United States federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions and the integration thereof (including the integration of the recently acquired Pall Corporation (“Pall”)), divestitures, spin-offs, split-offs or other distributions (including the anticipated separation of Danaher into two independent companies in 2016), strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Danaher intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words.
Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Important factors that could cause actual results to differ materially from those envisaged in the forward-looking statements include the following:
Conditions in the global economy, the markets we serve and the financial markets may adversely affect our business and financial statements.
Our restructuring actions could have long-term adverse effects on our business.
Our growth could suffer if the markets into which we sell our products (including software) and services decline, do not grow as anticipated or experience cyclicality.
We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce prices for our products and services.

23


Our growth depends in part on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation.
Our reputation, ability to do business and financial statements may be impaired by improper conduct by any of our employees, agents or business partners.
Any inability to consummate acquisitions at our historical rate and at appropriate prices could negatively impact our growth rate and stock price.
Our acquisition of businesses, including Pall, joint ventures and strategic relationships could negatively impact our financial statements.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities.
Divestitures and other dispositions could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements.
We are pursuing a plan to separate into two independent publicly traded companies. The proposed separation may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits.
Certain of our businesses are subject to extensive regulation by the U.S. Food and Drug Administration (“FDA”) and by comparable agencies of other countries, as well as laws regulating fraud and abuse in the healthcare industry and the privacy and security of health information. Failure to comply with those regulations could adversely affect our reputation and financial statements.
The healthcare industry and related industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, which could adversely affect our financial statements.
Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our reputation and financial statements.
Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our financial statements and reputation.
We may be required to recognize impairment charges for our goodwill and other intangible assets.
Foreign currency exchange rates may adversely affect our financial statements.
Changes in our tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.
We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements.
If we do not or cannot adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights.
Third parties may claim that we are infringing or misappropriating their intellectual property rights and we could suffer significant litigation expenses, losses or licensing expenses or be prevented from selling products or services.
Defects and unanticipated use or inadequate disclosure with respect to our products (including software) or services could adversely affect our business, reputation and financial statements.
The manufacture of many of our products is a highly exacting and complex process, and if we directly or indirectly encounter problems manufacturing products, our reputation, business and financial statements could suffer.
Our indebtedness may limit our operations and our use of our cash flow, and any failure to comply with the covenants that apply to our indebtedness could adversely affect our liquidity and financial statements.
Adverse changes in our relationships with, or the financial condition, performance, purchasing patterns or inventory levels of, key distributors and other channel partners could adversely affect our financial statements.

24


Our financial results are subject to fluctuations in the cost and availability of commodities that we use in our operations.
If we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions and customer demand, our profitability may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components and services could cause production interruptions, delays and inefficiencies.
Changes in governmental regulations may reduce demand for our products or services or increase our expenses.
Work stoppages, union and works council campaigns and other labor disputes could adversely impact our productivity and results of operations.
International economic, political, legal, compliance and business factors could negatively affect our financial statements.
If we suffer loss to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events, our operations could be seriously harmed.
A significant disruption in, or breach in security of, our information technology systems could adversely affect our reputation and business.
Our defined benefit pension plans are subject to financial market risks that could adversely affect our financial statements.
See Part I – Item 1A of the Company’s 2014 Annual Report on Form 10-K and Part II - Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2015 for a further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. We do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.

OVERVIEW
General
As a result of the Company’s geographic and industry diversity, the Company faces a variety of opportunities and challenges, including rapid technological development (including with respect to computing, mobile connectivity, communications and digitization) in most of the Company’s served markets, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, consolidation of the Company’s competitors and increasing regulation.  The Company defines high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which includes Eastern Europe, the Middle East, Africa, Latin America and Asia with the exception of Japan and Australia.  The Company operates in a highly competitive business environment in most markets, and the Company’s long-term growth and profitability will depend in particular on its ability to expand its business in high-growth geographies and high-growth market segments, identify, consummate and integrate appropriate acquisitions, develop innovative and differentiated new products, services and software with higher gross profit margins, expand and improve the effectiveness of the Company’s sales force, continue to reduce costs and improve operating efficiency and quality, and effectively address the demands of an increasingly regulated environment.  The Company is making significant investments, organically and through acquisitions, to address the rapid pace of technological change in its served markets and to globalize its manufacturing, research and development and customer-facing resources (particularly in high-growth markets) in order to be responsive to the Company’s customers throughout the world and improve the efficiency of the Company’s operations.
Business Performance and Outlook
While differences exist among the Company’s businesses, on an overall basis, demand for the Company’s products, software and services increased during the third quarter of 2015 as compared to the comparable period of 2014 resulting in aggregate year-over-year sales growth from existing businesses of 3.0%. The Company's continued investments in sales growth initiatives and the other business-specific factors discussed below also contributed to year-over-year sales growth. Geographically, year-over-year sales growth rates from existing businesses during the third quarter of 2015 were relatively balanced across the regions. Sales growth rates from existing businesses in high-growth markets grew at a low-single digit rate during the third quarter of 2015 as compared to the comparable period of 2014 led by strength in China and India, partially

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offset by weakness in Russia, the Middle East and Brazil. High-growth markets represented approximately 26% of the Company's total sales in the third quarter of 2015. Sales from existing businesses in developed markets grew at a low-single digit rate during the third quarter of 2015 with mid-single digit growth in Western Europe and the United States remaining steady, growing at a low-single digit rate. The Company expects overall sales growth to continue but remains cautious about challenges due to macro-economic and geopolitical uncertainties, including global uncertainties related to monetary and fiscal policies. In addition, the benefit of the additional days in the fiscal first quarter will be offset by fewer days in the Company's fiscal fourth quarter of 2015 as compared to the prior year.
Acquisitions
On August 31, 2015, Pentagon Merger Sub, Inc., a New York corporation and an indirect, wholly-owned subsidiary of the Company, acquired all of the outstanding shares of common stock of Pall, a New York corporation, for $127.20 per share in cash, for a total purchase price of approximately $13.6 billion, net of assumed debt of $417 million and acquired cash of approximately $1.2 billion (the “Pall Acquisition”). Pall is a leading global provider of filtration, separation and purification solutions that remove contaminants or separate substances from a variety of solids, liquids and gases, and is now part of the Company’s Life Sciences & Diagnostics segment. In its fiscal year ended July 31, 2015, Pall generated consolidated revenues of approximately $2.8 billion. Pall serves customers in the biopharmaceutical, food and beverage and medical markets as well as the process technologies, aerospace and microelectronics markets. The Pall Acquisition provides additional sales and earnings growth opportunities for the Company by expanding geographic and product line diversity, including new product and service offerings in the areas of filtration, separation and purification, and through the potential acquisition of complementary businesses. As Pall is integrated into the Company, the Company also expects to realize significant cost synergies through the application of the Danaher Business System and the combined purchasing power of the Company and Pall.
The Company financed the approximately $13.6 billion acquisition price of Pall with approximately $2.5 billion of available cash, approximately $8.1 billion of net proceeds from the issuance and sale of U.S. dollar- and Euro-denominated commercial paper and €2.7 billion (approximately $3.0 billion based on currency exchange rates as of date of issuance) of net proceeds from the issuance and sale of Euro-denominated senior unsecured notes. Subsequent to the Pall Acquisition, the Company used the approximately $2.0 billion of net proceeds from the issuance of U.S. dollar-denominated senior unsecured notes to repay a portion of the commercial paper issued to finance a portion of the Pall Acquisition.
In addition to the Pall Acquisition, during the first nine months of 2015, the Company acquired eight other businesses for total consideration of $632 million in cash, net of cash acquired. The businesses acquired complement existing units of the Environmental, Life Sciences & Diagnostics, Dental and Industrial Technologies segments. The aggregate annual sales of these eight 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 approximately $332 million.
Danaher Separation
On May 13, 2015, the Company announced its intention to separate into two independent publicly traded companies (the “Separation”). Consummation of the Separation will create:
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