Danaher Separation And Discontinued Operations

6 Months Ended

Jul. 01, 2016

Discontinued Operations and Disposal Groups [Abstract]

Danaher Separation And Discontinued Operations

DANAHER SEPARATION AND DISCONTINUED OPERATIONS

Danaher Separation

On July 2, 2016 (the “Distribution Date”), Danaher completed the separation (the “Separation”) of its Test & Measurement segment, Industrial Technologies segment (excluding the product identification businesses) and the retail/commercial petroleum business by distributing to Danaher stockholders on a pro rata basis all of the issued and outstanding common stock of Fortive Corporation (“Fortive”), the entity Danaher incorporated to hold such businesses. To effect the Separation, Danaher distributed to its stockholders one share of Fortive common stock for every two shares of Danaher common stock outstanding as of June 15, 2016, the record date for the distribution. Fractional shares of Fortive common stock that otherwise would have been distributed were aggregated and sold into the public market and the proceeds distributed to Danaher stockholders.

In preparation for the Separation, in June 2016 Fortive issued approximately $3.4 billion in debt securities (refer to Note 6). The proceeds from these borrowings were used to fund the approximately $3.0 billion net cash distributions Fortive made to Danaher prior to the Distribution Date. Danaher used a portion of the cash distribution proceeds to repay the $500 million aggregate principal amount of 2.3% senior unsecured notes due June 2016, and intends to use the balance of the proceeds received to redeem outstanding debt and pay certain of the Company’s regular, quarterly cash dividends to shareholders.

As the disposition occurred during the third quarter of 2016, the Company will classify Fortive as a discontinued operation in its historical financial statements beginning in the third quarter of 2016. For the year ended December 31, 2015, Fortive had revenues of approximately $6.1 billion. Below is a summary of Fortive's sales and operating profit ($ in millions):

	Three Month Period Ended				Six Month Period Ended
	July 1, 2016		July 3, 2015		July 1, 2016		July 3, 2015
Sales	$	1,543.1	$	1,553.7	$	3,006.2	$	3,056.2
Operating profit	324.4		351.4		593.4		658.8

As a result of planning for the Separation, the Company incurred $17 million and $26 million in separation-related costs during the three and six month periods ended July 1, 2016, respectively, which were recorded in selling, general and administrative expenses in the Consolidated Condensed Statements of Earnings. These Separation costs primarily relate to professional fees associated with preparation of regulatory filings and separation activities within finance, tax, legal and information system functions.

In connection with the Separation, Danaher and Fortive entered into various agreements to effect the Separation and provide a framework for their relationship after the Separation, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a DBS license agreement. These agreements provide for the allocation between Danaher and Fortive of assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Fortive’s separation from Danaher and will govern certain relationships between Danaher and Fortive after the Separation.

Discontinued Operations

In July 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 million shares of Danaher common stock (valued at approximately $2.3 billion based on the closing price of Danaher’s common stock 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 consolidated condensed financial statements for all periods presented reflect this business as discontinued operations. The Company allocated a portion of the consolidated interest expense to a discontinued operation 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 $767 million, or $1.08 per diluted share, in its 2015 results in connection with the closing of this transaction representing the value of the 26 million shares of Company common stock tendered for the communications business in excess of the carrying value of the business’ net assets. The communications business had revenues of $346 million in 2015 prior to the disposition and $760 million in 2014.

The key components of income from discontinued operations for the three and six month periods ended July 3, 2015 were as follows ($ in millions):

	Three Month Period Ended July 3, 2015			Six Month Period Ended July 3, 2015
Sales	$	166.9		$	345.5
Cost of sales	(50.7		)	(97.5		)
Selling, general, and administrative expenses	(79.2		)	(152.2		)
Research and development expenses	(40.3		)	(80.0		)
Interest expense	(0.7		)	(1.6		)
(Loss) earnings from discontinued operations before income taxes	(4.0		)	14.2
Income taxes	(15.8		)	(22.2		)
Loss from discontinued operations, net of income taxes	$	(19.8	)	$	(8.0	)