XNYS:DHR Danaher Corp Quarterly Report 10-Q Filing - 6/29/2012

Effective Date 6/29/2012

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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 June 29, 2012
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 July 13, 2012 was 695,355,477.



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




DANAHER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in thousands)
(unaudited)
 
 
June 29, 2012
 
December 31, 2011
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
1,118,240

 
$
537,001

Trade accounts receivable, net
3,094,250

 
3,049,895

Inventories:
 
 
 
Finished goods
920,069

 
930,914

Work in process
306,329

 
262,191

Raw material and supplies
629,413

 
588,247

Total inventories
1,855,811

 
1,781,352

Prepaid expenses and other current assets
542,194

 
904,109

Total current assets
6,610,495

 
6,272,357

Property, plant and equipment, net of accumulated depreciation of $1,770,850 and $1,665,983, respectively
2,065,451

 
2,100,990

Investment in joint venture
552,540

 
521,882

Other assets
837,943

 
739,686

Goodwill
14,927,272

 
14,474,323

Other intangible assets, net
6,176,882

 
5,840,209

Total assets
$
31,170,583

 
$
29,949,447

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Notes payable and current portion of long-term debt
$
55,407

 
$
98,392

Trade accounts payable
1,511,061

 
1,422,438

Accrued expenses and other liabilities
2,463,233

 
2,651,198

Total current liabilities
4,029,701

 
4,172,028

Other long-term liabilities
3,925,538

 
3,598,851

Long-term debt
4,847,620

 
5,206,800

Stockholders’ Equity:
 
 
 
Common stock - $0.01 par value
7,696

 
7,611

Additional paid-in capital
4,133,967

 
3,877,240

Retained earnings
14,235,198

 
13,056,869

Accumulated other comprehensive loss
(74,945
)
 
(36,937
)
Total Danaher stockholders’ equity
18,301,916

 
16,904,783

Non-controlling interests
65,808

 
66,985

Total stockholders’ equity
18,367,724

 
16,971,768

Total liabilities and stockholders’ equity
$
31,170,583

 
$
29,949,447

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

1


DANAHER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
 
July 1, 2011
 
June 29, 2012
 
 
July 1, 2011
Sales
$
4,553,459

 
 
$
3,635,871

 
$
8,869,679

 
 
$
6,928,069

Cost of sales
(2,198,003
)
 
 
(1,718,319
)
 
(4,278,679
)
 
 
(3,261,667
)
Gross profit
2,355,456

 
 
1,917,552

 
4,591,000

 
 
3,666,402

Operating costs and other:
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
(1,278,610
)
 
 
(1,088,385
)
 
(2,523,507
)
 
 
(2,051,627
)
Research and development expenses
(283,602
)
 
 
(233,670
)
 
(553,726
)
 
 
(448,900
)
Earnings from unconsolidated joint venture
18,030

 
 
14,460

 
32,375

 
 
28,935

Operating profit
811,274

 
 
609,957

 
1,546,142

 
 
1,194,810

Non-operating income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(37,876
)
 
 
(31,412
)
 
(77,299
)
 
 
(61,851
)
Interest income
707

 
 
2,280

 
1,466

 
 
4,395

Earnings from continuing operations before income taxes
774,105

 
 
580,825

 
1,470,309

 
 
1,137,354

Income taxes
(173,956
)
 
 
(141,275
)
 
(350,106
)
 
 
(281,029
)
Net earnings from continuing operations
600,149

 
 
439,550

 
1,120,203

 
 
856,325

Earnings from discontinued operations, net of income taxes

 
 
209,214

 
92,858

 
 
221,797

Net earnings
$
600,149

 
 
$
648,764

 
$
1,213,061

 
 
$
1,078,122

Net earnings per share from continuing operations:
 
 
 
 
 
 
 
 
 
Basic
$
0.86

 
 
$
0.66

 
$
1.62

 
 
$
1.29

Diluted
$
0.84

 
 
$
0.64

 
$
1.57

 
 
$
1.24

Net earnings per share from discontinued operations:
 
 
 
 
 
 
 
 
 
Basic
$

 
 
$
0.31

 
$
0.13

 
 
$
0.33

Diluted
$

 
 
$
0.30

 
$
0.13

 
 
$
0.32

Net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.86

 
 
$
0.97

 
$
1.75

 
 
$
1.62

Diluted
$
0.84

 
 
$
0.94

 
$
1.70

 
 
$
1.56

Average common stock and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
695,570

 
 
667,207

 
693,539

 
 
664,403

Diluted
714,910

 
 
694,599

 
714,467

 
 
691,464

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

2


DANAHER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Net earnings
$
600,149

 
$
648,764

 
$
1,213,061

 
$
1,078,122

Other comprehensive (loss) income, net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(256,149
)
 
112,712

 
(100,107
)
 
365,729

Pension and postretirement plan benefit adjustments
5,763

 
4,789

 
12,944

 
9,578

Unrealized gain on available-for-sale securities
20,824

 
18,265

 
49,155

 
26,724

Total other comprehensive (loss) income, net of income taxes
(229,562
)
 
135,766

 
(38,008
)
 
402,031

Comprehensive income
$
370,587

 
$
784,530

 
$
1,175,053

 
$
1,480,153

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

3


DANAHER CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY
($ and shares in thousands)
(unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Non-
Controlling
Interests
Shares
 
Amount
 
Balance, December 31, 2011
761,067

 
$
7,611

 
$
3,877,240

 
$
13,056,869

 
$
(36,937
)
 
$
66,985

Net earnings for the period

 

 

 
1,213,061

 

 

Other comprehensive loss

 

 

 

 
(38,008
)
 

Dividends declared

 

 

 
(34,732
)
 

 

Common stock based award activity
5,723

 
57

 
154,631

 

 

 

Common stock issued in connection with LYONs’ conversions including tax benefit of $23.3 million
2,818

 
28

 
102,096

 

 

 

Change in non-controlling interests

 

 

 

 

 
(1,177
)
Balance, June 29, 2012
769,608

 
$
7,696

 
$
4,133,967

 
$
14,235,198

 
$
(74,945
)
 
$
65,808

 
See the accompanying Notes to the Consolidated Condensed Financial Statements.

4


DANAHER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited) 
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
Cash flows from operating activities:
 
 
 
Net earnings
$
1,213,061

 
$
1,078,122

Less: earnings from discontinued operations, net of income taxes
92,858

 
221,797

Net earnings from continuing operations
1,120,203

 
856,325

Non-cash items:
 
 
 
Depreciation
244,809

 
104,971

Amortization
165,021

 
118,639

Stock compensation expense
50,412

 
45,966

Earnings from unconsolidated joint venture, net of cash dividends received
(25,450
)
 
(16,586
)
Change in trade accounts receivable, net
(6,738
)
 
(20,669
)
Change in inventories
(26,589
)
 
(27,668
)
Change in trade accounts payable
71,359

 
43,753

Change in prepaid expenses and other assets
76,320

 
43,304

Change in accrued expenses and other liabilities
26,507

 
79,627

Total operating cash provided by continuing operations
1,695,854

 
1,227,662

Total operating cash used in discontinued operations
(41,671
)
 
(128,530
)
Net cash provided by operating activities
1,654,183

 
1,099,132

Cash flows from investing activities:
 
 
 
Payments for additions to property, plant and equipment
(228,552
)
 
(105,101
)
Proceeds from disposals of property, plant and equipment and other assets
14,134

 
3,431

Cash paid for acquisitions
(945,067
)
 
(6,056,279
)
Total investing cash used in continuing operations
(1,159,485
)
 
(6,157,949
)
Total investing cash used in discontinued operations
(26
)
 
(4,514
)
Proceeds from the sale of discontinued operations
337,470

 
680,105

Net cash used in investing activities
(822,041
)
 
(5,482,358
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of common stock
104,303

 
1,050,322

Payment of dividends
(34,732
)
 
(26,973
)
     Net (repayments of) proceeds from borrowings (maturities of 90 days or less)
(309,979
)
 
462,147

Proceeds of borrowings (maturities longer than 90 days)

 
1,785,764

Repayments of borrowings (maturities longer than 90 days)
(2,214
)
 
(2,021
)
Net cash (used in) provided by financing activities
(242,622
)
 
3,269,239

Effect of exchange rate changes on cash and equivalents
(8,281
)
 
32,590

Net change in cash and equivalents
581,239

 
(1,081,397
)
Beginning balance of cash and equivalents
537,001

 
1,632,980

Ending balance of cash and equivalents
$
1,118,240

 
$
551,583

Supplemental disclosures:
 
 
 
Cash interest payments
$
61,886

 
$
38,439

Cash income tax payments (including $28 million and $53 million for the six month periods ended June 29, 2012 and July 1, 2011, respectively, related to the gain on sale of discontinued operations - refer to Note 3)
$
148,847

 
$
162,696

 See the accompanying Notes to the Consolidated Condensed Financial Statements.

5


DANAHER CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

NOTE 1. GENERAL
The consolidated condensed financial statements included herein have been prepared by Danaher Corporation (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, 2011 and the Notes thereto included in the Company’s 2011 Annual Report on Form 10-K.
In the opinion of the registrant, 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 June 29, 2012 and December 31, 2011, and its results of operations for the three and six months ended June 29, 2012 and July 1, 2011 and its cash flows for the six months then ended. Refer to Note 3 for a discussion of the impact on the financial statement presentation resulting from the Company’s sale of its Pacific Scientific Aerospace (“PSA”), Accu-Sort (“ASI”) and Kollmorgen Electro-Optical (“KEO”) businesses.
Other Comprehensive Income - The components of other comprehensive income presented on a pre-tax basis and the associated income tax impact for the three and six month periods ended June 29, 2012 and July 1, 2011 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 postretirement plan benefits
 
Unrealized
gain on
available-for-
sale securities
 
Total other
comprehensive
income (loss)
For the Three Months Ended June 29, 2012:
 
 
 
 
 
 
 
Before income tax amount
$
(256.1
)
 
$
9.2

 
$
33.3

 
$
(213.6
)
Income tax expense

 
(3.4
)
 
(12.5
)
 
(15.9
)
Net of income tax amount
$
(256.1
)
 
$
5.8

 
$
20.8

 
$
(229.5
)
 
 
 
 
 
 
 
 
For the Three Months Ended July 1, 2011:
 
 
 
 
 
 
 
Before income tax amount
$
112.7

 
$
7.4

 
$
28.0

 
$
148.1

Income tax expense

 
(2.6
)
 
(9.7
)
 
(12.3
)
Net of income tax amount
$
112.7

 
$
4.8

 
$
18.3

 
$
135.8

 
 
 
 
 
 
 
 
For the Six Months Ended June 29, 2012:
 
 
 
 
 
 
 
Before income tax amount
$
(100.1
)
 
$
20.3

 
$
78.6

 
$
(1.2
)
Income tax expense

 
(7.4
)
 
(29.5
)
 
(36.9
)
Net of income tax amount
$
(100.1
)
 
$
12.9

 
$
49.1

 
$
(38.1
)
 
 
 
 
 
 
 
 
For the Six Months Ended July 1, 2011:
 
 
 
 
 
 
 
Before income tax amount
$
365.7

 
$
14.8

 
$
41.1

 
$
421.6

Income tax expense

 
(5.2
)
 
(14.4
)
 
(19.6
)
Net of income tax amount
$
365.7

 
$
9.6

 
$
26.7

 
$
402.0



6


NOTE 2. ACQUISITIONS
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 process by which the Company acquired the business; and the complementary strategic fit and resulting synergies these businesses bring to existing operations.
The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair 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 2012 and 2011 acquisitions and is also in the process of obtaining valuations of 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 financial statements was required.
The following briefly describes the Company’s acquisition activity for the six months ended June 29, 2012. For a description of the Company’s acquisition activity for the year ended December 31, 2011, reference is made to Note 2 of the financial statements as of and for the year ended December 31, 2011 and the Notes thereto included in the Company’s 2011 Annual Report on Form 10-K.
During the first six months of 2012, the Company acquired eight businesses (including the acquisition of X-Rite, Incorporated, a global leader in color measurement technology), for total consideration of $945 million in cash, net of cash acquired. The businesses acquired manufacture and distribute products and/or provide services that complement existing units of the Industrial Technologies, Life Sciences & Diagnostics, Environmental and Test & Measurement segments. The aggregate annual sales of the eight businesses acquired at the time of their respective acquisitions, in each case based on the acquired company’s revenues for its last completed fiscal year prior to the acquisition, were $376 million. The Company preliminarily recorded an aggregate of $512 million of goodwill related to these acquisitions.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the six months ended June 29, 2012 ($ in millions):
 
 
Total
Accounts receivable
$
54.7

Inventories
37.5

Property, plant and equipment
13.1

Goodwill
511.5

Other intangible assets, primarily trade names, customer relationships and patents
469.1

In-process research and development
56.7

Accounts payable
(25.5
)
Other assets and liabilities, net
(172.0
)
Net cash consideration
$
945.1



7


Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the 2012 and 2011 acquisitions as if they had occurred as of January 1, 2011. 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
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Sales
$
4,603.8

 
$
4,630.2

 
$
9,009.2

 
$
8,985.9

Net earnings from continuing operations
601.7

 
422.4

 
1,127.0

 
854.7

Diluted earnings per share from continuing operations
$
0.84

 
$
0.60

 
$
1.58

 
$
1.22


NOTE 3. DISCONTINUED OPERATIONS
In January 2012, the Company completed the sale of its integrated scanning system business (the ASI business) for a sale price of $132 million in cash. In addition, in February 2012, the Company completed the sale of its KEO business for a sale price of $205 million in cash. These businesses were part of the Industrial Technologies segment. ASI supplies bar code scanning and dimensional measurement systems and KEO designs, develops, manufactures and integrates highly engineered, stabilized electro-optical/ISR systems that integrate into submarines, surface ships, and combat and ground vehicles. The businesses had combined annual revenues of $275 million in 2011. The Company recorded an aggregate after-tax gain on the sale of these businesses of $94 million or $0.13 per diluted share in its first quarter 2012 results in connection with the closing of these transactions.
In April 2011, the Company completed the divestiture of its PSA business for a sale price of $680 million in cash. This business, which was also part of the Industrial Technologies segment and supplies safety, security and electric power components to commercial and military aerospace markets globally, had annual revenues of $377 million in 2010. The Company recorded an after-tax gain on the sale of PSA of $202 million or $0.29 per diluted share in its second quarter 2011 results in connection with the closing of the transaction.
The Company has reported the PSA, ASI and KEO businesses as discontinued operations in its consolidated financial statements. Accordingly, the results of operations for all periods presented reflect these businesses as discontinued operations and the assets and liabilities of these businesses have been classified as held for sale for all periods presented. The Company allocated a portion of the consolidated interest expense to discontinued operations based on the ratio of the discontinued businesses’ net assets to the Company’s consolidated net assets.
The key components of income from discontinued operations were as follows ($ in millions):
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Net sales
$

 
$
88.8

 
$
9.9

 
$
239.9

Operating expenses

 
(76.5
)
 
(11.2
)
 
(207.0
)
Allocated interest expense

 
(0.3
)
 

 
(1.2
)
Earnings (loss) before income taxes

 
12.0

 
(1.3
)
 
31.7

Income tax (expense) benefit

 
(4.5
)
 
0.5

 
(11.6
)
Earnings (loss) from discontinued operations

 
7.5

 
(0.8
)
 
20.1

Gain on sale, net of $55 million of related income taxes for the six month period ended June 29, 2012 and $126 million of related income taxes for the three and six month periods ended July 1, 2011, respectively

 
201.7

 
93.7

 
201.7

Earnings from discontinued operations, net of income taxes
$

 
$
209.2

 
$
92.9

 
$
221.8



8


As of December 31, 2011, the aggregate components of assets and liabilities classified as held-for-sale and included in other current assets and other current liabilities consisted of the following ($ in millions):
 
Accounts receivable, net
$
82.7

Inventories
10.5

Prepaid expenses and other
9.3

Property, plant and equipment, net
31.5

Goodwill and other intangibles, net
104.0

Total assets
$
238.0

 
 
Accounts payable
$
32.7

Accrued expenses and other
47.8

Total liabilities
$
80.5


NOTE 4. GOODWILL
The following table shows the rollforward of goodwill reflected in the financial statements resulting from the Company’s activities during the six months ended June 29, 2012 ($ in millions):
 
Balance, December 31, 2011
$
14,474.3

Attributable to 2012 acquisitions
511.5

Foreign currency translation & other
(58.5
)
Balance, June 29, 2012
14,927.3


The carrying value of goodwill by segment as of June 29, 2012 and December 31, 2011 is summarized as follows ($ in millions):
 
Segment
June 29, 2012
 
December 31, 2011
Test & Measurement
$
3,198.2

 
$
3,038.0

Environmental
1,454.2

 
1,449.2

Life Sciences & Diagnostics
5,835.1

 
5,842.0

Dental
2,122.7

 
2,122.1

Industrial Technologies
2,317.1

 
2,023.0

 
$
14,927.3

 
$
14,474.3


Goodwill arises from the purchase price for acquired businesses exceeding the fair value of tangible and intangible assets acquired less assumed liabilities and non-controlling interests. Management assesses the goodwill of each of its reporting units for impairment at least annually at the beginning of the fourth quarter and as “triggering” events occur. The Company’s most recent annual impairment test was performed as of the first day of the Company’s fiscal fourth quarter of 2011 and no impairment was identified. Reporting units resulting from recent acquisitions generally present the highest risk of impairment. Management believes the impairment risk associated with these reporting units typically decreases as such businesses are integrated into the Company and positioned for improved future earnings growth. In measuring the fair value of its reporting units, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows and transactions and market place data. The factors used by management in its impairment analysis are inherently subject to uncertainty. While the Company believes it has made reasonable estimates and assumptions to calculate the fair value of its reporting units, if actual results are not consistent with management’s estimates and assumptions, goodwill may be overstated and a charge would need to be taken against net earnings.






9



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 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 as of June 29, 2012 and December 31, 2011 were as follows ($ in millions):
 
 
Quoted Prices
in Active
Market
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
June 29, 2012:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
365.7

 

 

 
$
365.7

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plans

 
$
61.4

 

 
61.4

Currency swap agreement

 
41.8

 

 
41.8

December 31, 2011:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
287.0

 

 

 
287.0

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plans

 
58.2

 

 
58.2

Currency swap agreement

 
53.9

 

 
53.9


Available-for-sale securities are measured at fair value using quoted market prices in an active market and 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 this plan are unfunded, unsecured obligations of the Company and are presented as a component of the Company’s compensation and benefits accrual included in accrued expenses 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.
In connection with the acquisition of Beckman Coulter in June 2011, the Company acquired an existing currency swap agreement. The agreement requires the Company to purchase approximately 184 million Japanese Yen (JPY/¥) at a rate of $1/¥102.25 on a monthly basis through June 1, 2018. As of June 29, 2012, the aggregate Japanese Yen purchase commitment was approximately ¥13.0 billion (approximately $163 million based on exchange rates as of June 29, 2012). The currency swap does not qualify for hedge accounting, and as a result changes in the fair value of the currency swap are reflected in selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings each reporting period. During the three and six months ended June 29, 2012 the Company recorded a pre-tax charge of approximately $6 million and pre-tax income of approximately $8 million, respectively, related to changes in the fair value of this currency swap. The fair value of the currency swap is included in other long-term liabilities in the accompanying Consolidated Condensed

10


Balance Sheets. Since there is not an active market for the currency swap, the Company obtains a market quote based on observable inputs, including foreign currency exchange market data, from the swap counterparties to adjust the currency swap to fair value each quarter.

Fair Value of Financial Instruments
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.
The fair values and carrying amounts of financial instruments as of June 29, 2012 and December 31, 2011 were as follows ($ in millions):
 
 
June 29, 2012
 
December 31, 2011
 
Carrying
Amount
 
Fair Value
(1)
 
Carrying
Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
365.7

 
$
365.7

 
$
287.0

 
$
287.0

Liabilities:
 
 
 
 
 
 
 
Short-term borrowings
55.4

 
55.4

 
98.4

 
98.4

Long-term borrowings
4,847.6

 
5,478.5

 
5,206.8

 
5,790.1

Currency swap agreement
41.8

 
41.8

 
53.9

 
53.9

 
(1)
Effective January 1, 2012, the Company is required to disclose, on a prospective basis, the level within the fair value hierarchy at which the fair values of the financial instruments are categorized. As of June 29, 2012, available-for-sale securities and short and long-term borrowings were categorized as level 1, while the currency swap agreement was categorized as level 2.
The fair values of available-for-sale securities and long-term borrowings were computed based on quoted market prices. The differences 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”)) are attributable to changes in 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 available-for-sale securities represent the Company’s investment in marketable securities that are accounted for at fair value. The currency swap agreement is accounted for at fair value based on a market quote obtained from the swap counterparties on a quarterly basis. The fair values of short-term borrowings, as well as, cash and cash equivalents, trade accounts receivable, net, and trade accounts payable approximate the carrying amounts due to the short-term maturities of these instruments.


11


NOTE 6. FINANCING TRANSACTIONS
As of June 29, 2012, the Company was in compliance with all of its debt covenants. The components of the Company’s debt as of June 29, 2012 and December 31, 2011 were as follows ($ in millions):
 
 
June 29, 2012
 
December 31, 2011
U.S. dollar-denominated commercial paper
$
726.2

 
$
977.3

4.5% guaranteed Eurobond notes due 2013 (€500 million)
632.5

 
647.3

Floating rate senior notes due 2013
300.0

 
300.0

1.3% senior notes due 2014
400.0

 
400.0

2.3% senior notes due 2016
500.0

 
500.0

5.625% senior notes due 2018
500.0

 
500.0

5.4% senior notes due 2019
750.0

 
750.0

3.9% senior notes due 2021
600.0

 
600.0

Zero-coupon LYONs due 2021
304.9

 
379.6

Other
189.4

 
251.0

Subtotal
4,903.0

 
5,305.2

Less – currently payable
55.4

 
98.4

Long-term debt
$
4,847.6

 
$
5,206.8


For a full description of the Company’s debt financing, reference is made to Note 10 of the Company’s financial statements as of and for the year ended December 31, 2011 included in the Company’s 2011 Annual Report on Form 10-K.
During the six months ended June 29, 2012, holders of certain of the Company’s LYONs converted such LYONs into an aggregate of approximately 2.8 million shares of the Company’s common stock, 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 $23 million was transferred to additional paid-in capital as a result of the conversions.
The Company primarily satisfies any short-term liquidity needs that are not met through operating cash flow and available cash through issuances of commercial paper under its U.S. and Euro commercial paper programs. As of June 29, 2012, borrowings outstanding under the Company’s U.S. commercial paper program had a weighted average interest rate of 0.2% and a weighted average maturity of approximately thirteen days. There was no commercial paper outstanding under the Euro commercial paper program as of June 29, 2012. The Company classified its borrowings outstanding under the commercial paper programs as of June 29, 2012, as well as its floating rate senior notes due in June 2013, as long-term debt in the accompanying Consolidated Condensed Balance Sheet as the Company had the intent and ability, as supported by availability under the Credit Facility referenced below, to refinance these borrowings for at least one year from the balance sheet date.
Credit support for the commercial paper program is provided by a $2.5 billion unsecured multi-year revolving credit facility with a syndicate of banks that expires on July 15, 2016 (the “Credit Facility”). The Credit Facility can also be used for working capital and other general corporate purposes. As of June 29, 2012, no borrowings were outstanding under the Credit Facility and the Company was in compliance with all covenants under the facility. In addition to the Credit Facility, the Company has entered into reimbursement agreements with various commercial banks to support the issuance of letters of credit.


12



NOTE 7. DEFINED BENEFIT PLANS
The following sets forth the components of the Company’s net periodic benefit cost of the non-contributory defined benefit plans ($ in millions):
 
 
U.S.
 
Non U.S.
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 29,
2012
 
July 1,
2011
 
June 29,
2012
 
July 1,
2011
 
June 29,
2012
 
July 1,
2011
 
June 29,
2012
 
July 1,
2011
Service cost
$
1.5

 
$
1.6

 
$
3.0

 
$
3.2

 
$
5.9

 
$
3.2

 
$
11.6

 
$
6.4

Interest cost
24.9

 
17.3

 
49.8

 
34.6

 
10.8

 
8.4

 
21.5

 
16.4

Expected return on plan assets
(32.2
)
 
(22.4
)
 
(64.4
)
 
(44.8
)
 
(8.2
)
 
(5.3
)
 
(16.3
)
 
(10.4
)
Amortization of actuarial loss
9.5

 
7.3

 
19.0

 
14.6

 
1.1

 
0.9

 
2.3

 
1.6

Amortization of prior service costs

 

 

 

 
(0.1
)
 

 
(0.2
)
 
(0.1
)
Settlement (gains) losses recognized

 

 

 

 

 
(0.3
)
 
0.9

 
(0.3
)
Net periodic cost
$
3.7

 
$
3.8

 
$
7.4

 
$
7.6

 
$
9.5

 
$
6.9

 
$
19.8

 
$
13.6


The following sets forth the components of the Company’s net periodic benefit cost of the other post-retirement employee benefit plans ($ in millions):
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Service cost
$
0.5

 
$
0.3

 
$
1.0

 
$
0.6

Interest cost
2.7

 
1.5

 
5.4

 
3.0

Amortization of prior service credits
(1.4
)
 
(1.4
)
 
(2.8
)
 
(2.8
)
Amortization of actuarial loss
1.0

 
0.9

 
2.0

 
1.8

Net periodic cost
$
2.8

 
$
1.3

 
$
5.6

 
$
2.6


Employer Contributions
During 2012, the Company’s cash contribution requirements for its U.S. defined benefit pension plan are not expected to be significant. The Company’s cash contribution requirements for its non-U.S. defined benefit pension plans are expected to be approximately $50 million, although the ultimate amounts to be contributed to the U.S. and non-U.S. plans 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. STOCK TRANSACTIONS AND STOCK-BASED COMPENSATION
In May 2012, the Company's shareholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock of the Company from 1 billion shares to 2 billion shares, $0.01 par value per share, which was filed and became effective on May 10, 2012.
The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for all equity awards granted, including stock options, restricted stock units (“RSUs”) and restricted shares, based on the fair value of the award as of the grant date. The Company recognizes the compensation expense over the requisite service period, which is generally the vesting period. The fair value for RSU and restricted stock awards is calculated using the closing price of the Company’s common stock on the date of grant. The fair value of the options granted is calculated using a Black-Scholes Merton option pricing model (“Black-Scholes”).
For a full description of the Company’s stock-based compensation, reference is made to Note 17 of the Company’s financial statements as of and for the year ended December 31, 2011 included in the Company’s 2011 Annual Report on Form 10-K. As of June 29, 2012, approximately 19 million shares of the Company’s common stock were reserved for issuance under the 2007 Stock Incentive Plan.


13


The following summarizes the assumptions used in the Black-Scholes model to value options granted during the six months ended June 29, 2012:
 
Risk-free interest rate
1.0 – 1.7%
Weighted average volatility
33.0%
Dividend yield
0.2%
Expected years until exercise
6.0 to 8.5

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest for periods within the contractual life of the option is based on a zero-coupon U.S. government instrument whose maturity period equals or approximates the option’s expected term. Expected volatility is based on implied volatility from traded options on the Company’s stock and historical volatility of the Company’s stock. The dividend yield is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date. To estimate the option exercise timing to be used in the valuation model, in addition to considering the vesting period and contractual term of the option, the Company analyzes and considers actual historical exercise data for previously granted options. The Company stratifies its employee population into multiple groups for option valuation and attribution purposes based upon distinctive patterns of forfeiture rates and option holding periods.
The amount of stock-based compensation expense recognized during a period is also based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of awards as of the grant date that actually vest.
The following table summarizes the components of the Company’s stock-based compensation program recorded as expense ($ in millions):
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
RSUs and restricted shares:
 
 
 
 
 
 
 
Pre-tax compensation expense
$
14.5

 
$
11.0

 
$
27.2

 
$
20.4

Income tax benefit
(4.4
)
 
(4.1
)
 
(9.2
)
 
(7.6
)
RSU and restricted share expense, net of income taxes
$
10.1

 
$
6.9

 
$
18.0

 
$
12.8

Stock options:
 
 
 
 
 
 
 
Pre-tax compensation expense
$
12.2

 
$
12.2

 
$
23.2

 
$
25.6

Income tax benefit
(3.7
)
 
(3.5
)
 
(7.0
)
 
(7.3
)
Stock option expense, net of income taxes
$
8.5

 
$
8.7

 
$
16.2

 
$
18.3

Total stock-based compensation expense:
 
 
 
 
 
 
 
Pre-tax compensation expense
$
26.7

 
$
23.2

 
$
50.4

 
$
46.0

Income tax benefit
(8.1
)
 
(7.6
)
 
(16.2
)
 
(14.9
)
Total stock-based compensation expense, net of income taxes
$
18.6

 
$
15.6

 
$
34.2

 
$
31.1


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 June 29, 2012, $121 million of total unrecognized compensation cost related to RSUs and restricted shares is expected to be recognized over a weighted average period of approximately two years. As of June 29, 2012, $127 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately two years. Both amounts will be adjusted for any future changes in estimated forfeitures.







14


Option activity under the Company’s stock plans during the six months ended June 29, 2012 was as follows (in thousands; except 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, 2011
32,454

 
$
32.98

 
 
 
 
Granted
1,787

 
$
53.54

 
 
 
 
Exercised
(4,565
)
 
$
24.37

 
 
 
 
Cancelled / forfeited
(749
)
 
$
38.73

 
 
 
 
Outstanding as of June 29, 2012
28,927

 
$
35.46

 
6

 
$
483,522

Vested and Expected to Vest as of June 29, 2012 (1)
28,259

 
$
35.26

 
6

 
$
478,106

Exercisable as of June 29, 2012
16,245

 
$
30.66

 
4

 
$
348,082

 
(1)
The “Expected to Vest” options are the net unvested options that remain after applying the pre-vesting 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 second quarter of 2012 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 June 29, 2012. 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 six months ended June 29, 2012 and July 1, 2011 was $128 million and $56 million, respectively. Exercise of options during the first six months of 2012 and 2011 resulted in cash receipts of $109 million and $59 million, respectively. The Company realized a tax benefit of approximately $11 million and $44 million in the three and six months ended June 29, 2012, 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. Excess tax benefits related to all equity awards are reflected as financing cash inflows in the accompanying Consolidated Condensed Statements of Cash Flows.
The following table summarizes information on unvested RSUs and restricted shares activity during the six months ended June 29, 2012:
 
 
Number of RSUs / Restricted
Shares (in thousands)
 
Weighted-Average
Grant-Date  Fair Value
Unvested as of December 31, 2011
5,979

 
$
37.72

Granted
772

 
$
53.56

Vested
(1,158
)
 
$
31.35

Forfeited
(284
)
 
$
38.15

Unvested as of June 29, 2012
5,309

 
$
41.39

The Company realized a tax benefit of approximately $2 million and $22 million in the three and six months ended June 29, 2012, respectively, related to the vesting of RSUs. The excess tax benefits attributable to RSUs and restricted stock have been recorded as an increase to additional paid-in capital.
In connection with the exercise of certain stock options and the vesting of certain RSUs and restricted shares previously issued by the Company, the Company has elected to withhold from the total shares issued or released to the award holder a number of shares sufficient to fund minimum tax withholding requirements (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 six months of 2012, approximately 1 million shares with an aggregate value of approximately $55 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.


15


NOTE 9. RESTRUCTURING AND OTHER RELATED CHARGES
During 2011, the Company recorded pre-tax restructuring and other related charges totaling $179 million. These costs were incurred to position the Company to provide superior products and services to its customers in a cost efficient manner, and in light of the uncertain macro-economic environment. For a full description of the Company’s restructuring activities, reference is made to Note 18 of the Company’s financial statements as of and for the year ended December 31, 2011 included in the Company’s 2011 Annual Report on Form 10-K.
Substantially all restructuring activities initiated in 2011 were completed by December 31, 2011. The Company expects substantially all cash payments associated with remaining termination benefits will be paid during 2012. The table below summarizes the accrual balance and utilization by type of restructuring cost associated with the 2011 actions ($ in millions):
 
 
Balance as of
 
Paid/
 
Balance as of
 
December 31, 2011
 
Settled
 
June 29, 2012
Restructuring Charges:
 
 
 
 
 
Employee severance and related
$
116.7

 
$
(79.7
)
 
$
37.0

Facility exit and related
7.5

 
(4.9
)
 
2.6

 
$
124.2

 
$
(84.6
)
 
$
39.6


NOTE 10. CONTINGENCIES
For a description of the Company’s litigation and contingencies, reference is made to Note 14 of the Company’s financial statements as of and for the year ended December 31, 2011 included in the Company’s 2011 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 ninety 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.
In certain cases, the Company will sell extended warranty or maintenance agreements. The proceeds from these agreements is deferred and recognized as revenue over the term of the agreement.
The following is a rollforward of the Company’s accrued warranty liability for the six months ended June 29, 2012 ($ in millions):
 
 
 
Balance, December 31, 2011
$
136.9

Accruals for warranties issued during the period
63.0

Settlements made
(64.1
)
Additions due to acquisitions
2.1

Effect of foreign currency translation
(1.0
)
Balance, June 29, 2012
$
136.9


NOTE 11. 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 six months ended June 29, 2012, approximately 2 million options to purchase shares were not included in the diluted earnings per share calculation as the impact of their inclusion would have been anti-dilutive. There were no anti-dilutive options for the three and six months ended July 1, 2011.

16


Information related to the calculation of net earnings from continuing operations per share 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 June 29, 2012:
 
 
 
 
 
Basic EPS
$
600.1

 
695.6

 
$
0.86

Adjustment for interest on convertible debentures
1.4

 

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

 
8.5

 
 
Incremental shares from assumed conversion of the convertible debentures

 
10.8

 
 
Diluted EPS
$
601.5

 
714.9

 
$
0.84

For the Three Months Ended July 1, 2011:
 
 
 
 
 
Basic EPS
$
439.6

 
667.2

 
$
0.66

Adjustment for interest on convertible debentures
1.6

 

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

 
13.5

 
 
Incremental shares from assumed conversion of the convertible debentures

 
13.9

 
 
Diluted EPS
$
441.2

 
694.6

 
$
0.64


 
Net Earnings
From Continuing
Operations
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
For the Six Months Ended June 29, 2012:
 
 
 
 
 
Basic EPS
$
1,120.2

 
693.5

 
$
1.62

Adjustment for interest on convertible debentures
3.1

 

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

 
10.2

 
 
Incremental shares from assumed conversion of the convertible debentures

 
10.8

 
 
Diluted EPS
$
1,123.3

 
714.5

 
$
1.57

For the Six Months Ended July 1, 2011:
 
 
 
 
 
Basic EPS
$
856.3

 
664.4

 
$
1.29

Adjustment for interest on convertible debentures
3.7

 

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

 
13.2

 
 
Incremental shares from assumed conversion of the convertible debentures

 
13.9

 
 
Diluted EPS
$
860.0

 
691.5

 
$
1.24



17


NOTE 12. 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. The Company’s equity in earnings of the Apex joint venture is shown separately in the Company’s segment disclosures. There has been no material change in total assets or liabilities by segment since December 31, 2011, except for the sale of the ASI and KEO businesses from the Industrial Technologies segment in January and February 2012, respectively.
Segment results are shown below ($ in millions):
 
 
Sales
 
Operating Profit
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Test & Measurement
$
856.4

 
$
848.2

 
$
1,702.8

 
$
1,678.7

 
$
184.2

 
$
190.2

 
$
375.8

 
$
362.4

Environmental
763.9

 
730.6

 
1,458.5

 
1,398.6

 
165.1

 
158.4

 
294.2

 
287.3

Life Sciences & Diagnostics
1,583.4

 
704.8

 
3,129.3

 
1,331.4

 
207.9

 
34.5

 
413.8

 
124.9

Dental
498.8

 
504.7

 
963.5

 
968.2

 
71.6

 
55.0

 
130.5

 
104.5

Industrial Technologies
851.0

 
847.6

 
1,615.6

 
1,551.2

 
190.3

 
184.4

 
348.1

 
340.2

Equity method earnings of Apex joint venture

 

 

 

 
18.0

 
14.5

 
32.4

 
28.9

Other

 

 

 

 
(25.8
)
 
(27.0
)
 
(48.7
)
 
(53.4
)
 
$
4,553.5

 
$
3,635.9

 
$
8,869.7

 
$
6,928.1

 
$
811.3

 
$
610.0

 
$
1,546.1

 
$
1,194.8



18


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, 2011 and Notes thereto, included in the Company’s 2011 Annual Report on Form 10-K, and the Company's MD&A and Consolidated Condensed Financial Statements and related Notes included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2012.

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this quarterly report, in other documents filed with or furnished by us to the Securities and Exchange Commission ("SEC"), in our press releases or in our other communications may be deemed to be “forward-looking statements” within the meaning of the 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 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 related synergies, divestitures, securities offerings, stock repurchases and executive compensation; growth, declines and other trends in markets we sell into; the anticipated impact of adopting new accounting pronouncements; the anticipated outcome of outstanding claims, legal proceedings, tax audits and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic conditions; 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,” “expects,” “estimates,” “projects,” “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 those envisaged by such 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:
Deterioration of, or instability in, the global economy and financial markets, particularly in Europe, may adversely affect our business and financial statements.
The restructuring actions that we have taken to reduce costs could have long-term adverse effects on our business.
Our growth could suffer if the markets into which we sell our products 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 market share and price reductions for our products.
Our growth depends in part on the timely development and commercialization, and customer acceptance, of new products and product enhancements 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 our continuing integration of Beckman Coulter, Inc. (“Beckman Coulter”) which we acquired in June 2011, could negatively impact our financial statements.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and may result in unexpected liabilities.
Divestitures could negatively impact our business and contingent liabilities from businesses that we have sold could adversely affect our financial statements.
Certain of our businesses are subject to extensive regulation by the U.S. Food and Drug Administration (“FDA”) and

19


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 or laws 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 financial statements and reputation.
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 tax liabilities could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.
We are subject to a variety of litigation and similar 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.
Product defects and unanticipated use or inadequate disclosure with respect to our products could adversely affect our business, reputation and financial statements.
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 condition.
Adverse changes in our relationships with, or the financial condition, performance or purchasing patterns of, key distributors and other channel partners could adversely affect our financial statements.
We may incur higher costs to produce our products if commodity prices rise.
If we cannot adjust the purchases required for our manufacturing activities to reflect changing market conditions or customer demand, our profitability may suffer. In addition, our reliance upon sole sources of supply for certain materials and components could cause production interruptions, delays and inefficiencies.
If we cannot adjust our manufacturing capacity to reflect the demand for our products, our profitability may suffer.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
Work stoppages, union and works council campaigns, labor disputes and other matters associated with our labor force could adversely impact our productivity and results of operations.
International economic, political, legal and business factors could negatively affect our financial statements.
If we suffer loss to our facilities, distribution systems or information technology systems due to catastrophe, attacks or other events our operations could be seriously harmed.
Our defined benefit pension plans are subject to financial market risks that could adversely affect our financial statements.
We own a 50% interest in but do not control the Apex Tool Group joint venture, and as a result we may not be able to direct management of the joint venture in a manner that we believe is in Danaher’s best interests.
See Part I – Item 1A of the Company’s 2011 Annual Report on Form 10-K 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 or other presentation 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 in most of the Company’s served markets, the expansion of opportunities in emerging markets, trends toward increased utilization of the global labor force and consolidation of the Company’s competitors. 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 product segments, identify, consummate and integrate appropriate acquisitions, develop innovative new products and services with higher gross profit margins, expand and improve the effectiveness of the Company’s sales force and continue to reduce costs and improve operating efficiency and quality. 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,

20


research and development and customer-facing resources (particularly in emerging markets such as China, India, Brazil and the Middle East) 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
The Company’s June 2011 acquisition of Beckman Coulter primarily drove the Company’s year-over-year sales growth in the second quarter of 2012. While differences exist among the Company’s businesses, on an overall basis, demand for the Company’s products and services resulted in aggregate year-over-year sales growth from existing businesses during the second quarter of 2012 driven by the Company’s previous and continuing investments in sales growth initiatives and the other business-specific factors discussed below. Geographically, year-over-year sales growth rates during the second quarter of 2012 were led primarily by North America and the emerging markets. Sales in Western Europe were essentially flat on a year-over-year basis. In light of the uncertainties in the macro-economic environment and consistent with the Company's approach of positioning itself to provide superior products and services to its customers in a cost efficient manner, on July 18, 2012, Danaher's Board of Directors committed to a plan to implement cost reductions in the Company's businesses. The plan, which is expected to be substantially completed by December 31, 2012, will result in pre-tax charges of approximately $100 million, the majority of which are expected to be incurred in the second half of 2012. The charges, all of which will result in cash expenditure, are expected to include both employee-related costs as well as other termination and exit costs.
The acquisition of Beckman Coulter in June 2011 provides additional sales and earnings growth opportunities for the Company’s Life Sciences & Diagnostics segment by expanding the businesses’ geographic and product line breadth, including new and complementary product and service offerings in the areas of clinical diagnostics and life sciences research, and through the potential acquisition of complementary businesses. As Beckman Coulter continues to be integrated into the Company, the Company is also realizing significant cost synergies through the application of the Danaher Business System and the combined purchasing power of the Company and Beckman Coulter. For a discussion of the acquisition’s impact on the Company and segment results, refer to the “Results of Operations” section of this MD&A.
Acquisitions and Divestitures
During the first six months of 2012, the Company acquired eight businesses (including the acquisition of X-Rite, Incorporated, a global leader in color measurement technology), for total consideration of $945 million in cash, net of cash acquired. The businesses acquired manufacture and distribute products and/or provide services that complement existing units of the Industrial Technologies, Life Sciences & Diagnostics, Environmental and Test & Measurement segments. The aggregate annual sales of the eight businesses acquired at the time of their respective acquisitions, in each case based on the acquired company’s revenues for its last completed fiscal year prior to the acquisition, were $376 million.
In January 2012, the Company completed the sale of its integrated scanning system business (the Accu-Sort (“ASI”) business) for a sale price of $132 million in cash. In addition, in February 2012, the Company completed the sale of its Kollmorgen Electro-Optical (“KEO”) business for a sale price of $205 million in cash. These businesses were part of the Industrial Technologies segment. ASI supplies bar code scanning and dimensional measurement systems and KEO designs, develops, manufactures and integrates highly engineered, stabilized electro-optical/ISR systems that integrate into submarines, surface ships, and combat and ground vehicles. The businesses had combined annual revenues of $275 million in 2011. The Company recorded an aggregate after-tax gain on the sale of these businesses of $94 million or $0.13 per diluted share in its first quarter 2012 results in connection with the closing of these transactions.
The Company has reported the ASI and KEO businesses, along with the Pacific Scientific Aerospace ("PSA") business which was sold in April 2011, as discontinued operations in its consolidated financial statements. Accordingly, the results of operations for all periods presented have been reclassified to reflect these businesses as discontinued operations and the assets and liabilities of these businesses have been reclassified as held for sale for all periods presented.
Currency Exchange Rates
On average, the U.S. dollar was stronger against other major currencies during the three and six month periods ended June 29, 2012 as compared to the comparable periods of 2011. As a result, currency exchange rates negatively impacted reported sales for the three and six month periods by approximately 3.5% and 2.0%, respectively, as compared to the comparable periods of 2011. If the currency exchange rates in effect as of June 29, 2012 were to prevail throughout the remainder of 2012, currency exchange rates would result in the reduction of the Company’s estimated 2012 revenues by approximately 2.5% on a year-over-year basis. Further strengthening of the U.S. dollar against other major currencies would further adversely impact the Company's sales for the remainder of the year. Weakening of the U.S. dollar against other major currencies would positively impact the Company’s sales on an overall basis. From June 29, 2012 through the date of filing of this Quarterly Report, the U.S. dollar continued to strengthen against many major currencies, including the Euro.

21




RESULTS OF OPERATIONS
Consolidated sales from continuing operations for the three months ended June 29, 2012 increased 25.0% compared to the three months ended July 1, 2011. Sales from existing businesses contributed 3.5% growth and sales from acquired businesses contributed 25.0% growth on a year-over-year basis. Currency translation reduced reported sales by 3.5% on a year-over-year basis.
Consolidated sales from continuing operations for the six months ended June 29, 2012 increased 28.0% compared to the six months ended July 1, 2011. Sales from existing businesses contributed 2.5% growth and sales from acquired businesses contributed 27.5% growth on a year-over-year basis. Currency translation reduced reported sales by 2.0% on a year-over-year basis.
In this report, references to sales from existing businesses refers to sales from continuing operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) sales from acquired businesses and (2) the impact of currency translation. References to sales or operating profit attributable to acquisitions or acquired businesses refer to GAAP sales or operating profit, as applicable, from acquired businesses recorded prior to the first anniversary of the acquisition. The portion of revenue attributable to currency translation is calculated as the difference between (a) the period-to-period change in revenue (excluding sales from acquired businesses) and (b) the period-to-period change in revenue (excluding sales from acquired businesses) after applying current period foreign exchange rates to the prior year period. Sales from existing businesses should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting the non-GAAP financial measure of sales from existing businesses provides useful information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our revenue performance with prior and future periods and to our peers. The Company excludes the effect of currency translation from sales from existing businesses because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends, and excludes the effect of acquisitions because the nature, size and number of acquisitions can vary dramatically from period to period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult.
Operating profit margins were 17.8% for the three months ended June 29, 2012 compared to 16.8% in the comparable period of 2011. Year-over-year operating profit margin comparisons benefited 80 basis points from the favorable impact of higher sales volumes and incremental year-over-year cost savings associated with continuing productivity improvement initiatives including the restructuring actions taken in the fourth quarter of 2011, net of incremental year-over-year costs associated with various sales, marketing and product development growth investments. In addition, acquisition related charges recorded in 2011 associated with the Beckman Coulter acquisition, including transaction costs, change in control charges and fair value adjustments to inventory and deferred revenue balances favorably impacted year-over-year operating profit margin comparisons by 150 basis points. During the second quarter 2012, the Company also resolved contingencies and recognized a gain with respect to a prior disposition of assets which favorably impacted operating profit margin comparisons by 20 basis points. The dilutive effect of acquisitions adversely impacted operating profit margin comparisons by 150 basis points and partially offset these positive factors.
Operating profit margins were 17.4% for the six months ended June 29, 2012 compared to 17.2% in the comparable period of 2011. Year-over-year operating profit margin comparisons benefited 85 basis points from the favorable impact of higher sales volumes and incremental year-over-year cost savings associated with continuing productivity improvement initiatives including the restructuring actions taken in the fourth quarter of 2011, net of incremental year-over-year costs associated with various sales, marketing and product development growth investments. In addition, acquisition related charges recorded in 2011 associated with the Beckman Coulter acquisition, including transaction costs, change in control charges and fair value adjustments to acquisition related inventory and deferred revenue balances favorably impacted year-over-year operating profit margin comparisons by 80 basis points. During the second quarter 2012, the Company also resolved contingencies and recognized a gain with respect to a prior disposition of assets which favorably impacted operating profit margin comparisons by 10 basis points. The dilutive effect of acquisitions adversely impacted operating profit margin comparisons by 155 basis points and partially offset these positive factors.

22


Business Segments
The following table summarizes sales by business segment for each of the periods indicated ($ in millions):
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Test & Measurement
$
856.4

 
$
848.2

 
$
1,702.8

 
$
1,678.7

Environmental
763.9

 
730.6

 
1,458.5

 
1,398.6

Life Sciences & Diagnostics
1,583.4

 
704.8

 
3,129.3

 
1,331.4

Dental
498.8

 
504.7

 
963.5

 
968.2

Industrial Technologies
851.0

 
847.6

 
1,615.6

 
1,551.2

Total
$
4,553.5

 
$
3,635.9

 
$
8,869.7

 
$
6,928.1


TEST & MEASUREMENT
The Company’s Test & Measurement segment is a leading global provider of electronic measurement instruments and monitoring, management and optimization tools for communications and enterprise networks and related services. The segment’s products are used in the design, development, manufacture, installation, deployment and operation of electronics equipment and communications networks and services. Customers for these products and services include manufacturers of electronic instruments; service, installation and maintenance professionals; manufacturers who design, develop, manufacture and install network equipment; and service providers who implement, maintain and manage communications networks and services. Also included in the Test & Measurement segment are the Company’s mobile tool and wheel service businesses.
Test & Measurement Selected Financial Data ($ in millions):
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Sales
$
856.4

 
$
848.2

 
$
1,702.8

 
$
1,678.7

Operating profit
184.2

 
190.2

 
375.8

 
362.4

Depreciation and amortization
32.2

 
31.4

 
63.4

 
63.2

Operating profit as a % of sales
21.5
%
 
22.4
%
 
22.1
%
 
21.6
%
Depreciation and amortization as a % of sales
3.8
%
 
3.7
%
 
3.7
%
 
3.8
%
 
Components of Sales Change
% Change
Three Months Ended June 29, 2012 vs.
Comparable 2011 Period
 
% Change
Six Months Ended June 29, 2012 vs.
Comparable 2011 Period
Existing businesses
1.0
 %
 
1.5
 %
Acquisitions
1.5
 %
 
1.0
 %
Currency exchange rates
(1.5
)%
 
(1.0
)%
Total
1.0
 %
 
1.5
 %

Year-over-year price increases in the segment contributed 1.0% and 0.5% to sales growth on a year-over-year basis during the three and six month periods ended June 29, 2012, respectively, and are reflected as a component of the change in sales from existing businesses.
During both the three and six months ended June 29, 2012, sales in the segment’s instrument businesses declined at a mid-single digit rate on a year-over-year basis as lower demand for most product categories more than offset modest sales increases of service and installation tools and product related services. Instrument demand was particularly weak in China and Europe. The year-over-year rate of sales decline from existing businesses in the instruments business during the third quarter of 2012 is expected to be in line with the rate experienced during the first half of 2012.
Sales in the segment’s communications businesses grew at a mid-teens rate during both the three and six month periods on a year-over-year basis, primarily in North America, and largely as a result of strong demand for network management solutions

23


and, to a lesser extent, core network enterprise solutions. Robust global demand for network security and analysis solutions during both the three and six month periods also contributed to the sales growth. While sales of existing communications business' products and services are expected to remain solid for the remainder of 2012, year-over-year sales growth rates are expected to moderate from the first half 2012 sales growth rates largely due to exceptionally high sales levels experienced in the second half of 2011.
Operating profit margins declined 90 basis points during the three months ended June 29, 2012 as compared to the comparable period of 2011. Year-over-year operating profit margin comparisons were adversely impacted by 85 basis points as lower instrument sales volumes more than offset the favorable impacts to operating profit margin comparisons of increased sales volumes of higher operating profit margin communication business products and incremental year-over-year cost savings associated with continuing productivity improvement initiatives, including the restructuring actions taken in the fourth quarter of 2011. Incremental year-over-year costs associated with various sales, marketing and product development growth investments also adversely impacted year-over-year operating profit margin comparisons. The dilutive effect of acquired businesses adversely impacted year-over-year operating profit margin comparisons by 5 basis points.
Operating profit margins increased 50 basis points during the six months ended June 29, 2012 as compared to the comparable period of 2011. Year-over-year operating profit margins were higher in the first six months of 2012 as increased sales volumes of communication business products, particularly in the first quarter 2012, more than offset the unfavorable impact of lower instrument sales volumes. In addition, incremental year-over-year cost savings associated with continuing productivity improvements, including the restructuring actions taken in the fourth quarter of 2011 benefited year-over-year operating profit margin comparisons while incremental year-over-year costs associated with various sales, marketing and product development growth investments adversely impacted year-over-year comparisons.

ENVIRONMENTAL
The Company’s Environmental segment provides products that help protect water supply and air quality and serves two primary markets: water quality and retail/commercial petroleum. The Company’s water quality business is a global leader in water quality analysis and treatment, providing instrumentation and disinfection systems to help analyze and manage the quality of ultra pure, potable and waste water in residential, commercial, industrial and natural resource applications. The Company’s retail/commercial petroleum business is a leading worldwide provider of products and services for the retail/commercial petroleum market.
Environmental Selected Financial Data ($ in millions):
 
 
Three Months Ended
 
Six Months Ended
 
June 29, 2012
 
July 1, 2011
 
June 29, 2012
 
July 1, 2011
Sales
$
763.9

 
$
730.6

 
$
1,458.5

 
$
1,398.6

Operating profit
165.1

 
158.4

 
294.2

 
287.3

Depreciation and amortization
11.7

 
11.5

 
23.3

 
22.7

Operating profit as a % of sales
21.6
%
 
21.7
%
 
20.2
%
 
20.5
%
Depreciation and amortization as a % of sales
1.5
%
 
1.6
%
 
1.6
%
 
1.6
%
 
Components of Sales Change
% Change
Three Months Ended June 29, 2012 vs.
Comparable 2011 Period
 
% Change
Six Months Ended June 29, 2012 vs.
Comparable 2011 Period
Existing businesses
6.0
 %
 
4.5
 %
Acquisitions
2.0
 %
 
2.5
 %
Currency exchange rates
(3.5
)%
 
(2.5
)%
Total
4.5
 %
 
4.5
 %

Price increases in the segment contributed 2.0% and 1.5% to sales growth on a year-over-year basis during the three and six month periods, respectively, and are reflected as a component of the change in sales from existing businesses.


24


Sales from existing businesses in the segment’s water quality businesses grew at a mid-single digit rate during both the three and six months ended June 29, 2012 as compared to the comparable periods of 2011. Sales growth in both periods was led by increased demand for the businesses’ laboratory and process instruments and consumables, primarily in North American municipal markets, and was partially offset by lower overall demand in China. Sales from existing businesses to European municipal markets were essentially flat in both periods. Sales in the business’ chemical treatment solutions product line also grew on a year-over-year basis for both the three and six month periods primarily due to the addition of new customers in the U.S. market and to a lesser extent to continued international expansion. Sales in the business’ ultraviolet water disinfection product line grew modestly during the three month period and declined during the six month period on a year-over-year basis. The sales decline during the six month period was due primarily to a difficult prior year comparison resulting from strong industrial sales in the first quarter of 2011, and to a lesser extent, lower 2012 demand from municipal end markets.
Sales from existing businesses in the segment’s retail petroleum equipment businesses grew at a high-single digit rate during the three months ended June 29, 2012 and grew at a mid-single digit rate during the six months ended June 29, 2012, in each case as compared to the comparable period of 2011. Increased demand for the business’ dispensing equipment and environmental monitoring solutions primarily drove the year-over-year sales growth during both periods. Increased sales of payment solutions also contributed to year-over-year sales growth in the second quarter of 2012. Sales growth was partially offset by lower demand for point of sale retail solutions during both periods due to the timing of customers’ compliance with enhanced payment industry security standards which were completed in 2011.
Operating profit margins declined 10 basis points during the three months ended June 29, 2012 as compared to the comparable period of 2011. The dilutive effect of acquisitions adversely impacted year-over-year operating margin comparisons by 65 basis points. Year-over-year operating profit margin comparisons benefited 55 basis points from the favorable impact of higher sales volumes and incremental year-over-year cost savings associated with continuing productivity improvement initiative