Document
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 30, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
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 14, 2017 was 694,689,883.


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

Table of Contents


DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ and shares in millions, except per share amount)
(unaudited)
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
726.4

 
$
963.7

Trade accounts receivable, net
3,214.8

 
3,186.1

Inventories:
 
 
 
Finished goods
958.4

 
884.4

Work in process
290.5

 
299.4

Raw materials
542.8

 
525.6

Total inventories
1,791.7

 
1,709.4

Prepaid expenses and other current assets
523.7

 
805.9

Total current assets
6,256.6

 
6,665.1

Property, plant and equipment, net of accumulated depreciation of $2,226.0 and $1,963.3, respectively
2,422.8

 
2,354.0

Other long-term assets
693.9

 
631.3

Goodwill
24,523.6

 
23,826.9

Other intangible assets, net
11,749.9

 
11,818.0

Total assets
$
45,646.8

 
$
45,295.3

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable and current portion of long-term debt
$
169.5

 
$
2,594.8

Trade accounts payable
1,427.0

 
1,485.0

Accrued expenses and other liabilities
2,606.1

 
2,794.2

Total current liabilities
4,202.6

 
6,874.0

Other long-term liabilities
5,426.5

 
5,670.3

Long-term debt
11,422.5

 
9,674.2

Stockholders’ equity:
 
 
 
Common stock - $0.01 par value, 2.0 billion shares authorized; 810.4 and 807.7 issued; 694.7 and 692.2 outstanding, respectively
8.1

 
8.1

Additional paid-in capital
5,424.1

 
5,312.9

Retained earnings
21,572.3

 
20,703.5

Accumulated other comprehensive income (loss)
(2,414.5
)
 
(3,021.7
)
Total Danaher stockholders’ equity
24,590.0

 
23,002.8

Noncontrolling interests
5.2

 
74.0

Total stockholders’ equity
24,595.2

 
23,076.8

Total liabilities and stockholders’ equity
$
45,646.8

 
$
45,295.3

See the accompanying Notes to the Consolidated Condensed Financial Statements.

1
Table of Contents

DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
 
Three-Month Period Ended
 
Six-Month Period Ended
 
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
 
Sales
$
4,510.1

 
$
4,241.9

 
$
8,715.8

 
$
8,166.0

 
Cost of sales
(2,027.8
)
 
(1,860.6
)
 
(3,899.2
)
 
(3,617.4
)
 
Gross profit
2,482.3

 
2,381.3

 
4,816.6

 
4,548.6

 
Operating costs:
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
(1,515.3
)
 
(1,431.3
)
 
(2,958.3
)
 
(2,759.4
)
 
Research and development expenses
(283.3
)
 
(239.9
)
 
(550.7
)
 
(466.0
)
 
Operating profit
683.7

 
710.1

 
1,307.6

 
1,323.2

 
Nonoperating income (expense):
 
 
 
 
 
 
 
 
Other income
—

 
—

 
—

 
223.4

 
Interest expense
(40.7
)
 
(55.5
)
 
(81.0
)
 
(108.4
)
 
Interest income
1.8

 
—

 
3.4

 
—

 
Earnings from continuing operations before income taxes
644.8

 
654.6

 
1,230.0

 
1,438.2

 
Income taxes
(87.5
)
 
(236.6
)
 
(188.9
)
 
(434.4
)
 
Net earnings from continuing operations
557.3

 
418.0

 
1,041.1

 
1,003.8

 
Earnings from discontinued operations, net of income taxes
—

 
238.7

 
22.3

 
411.3

 
Net earnings
$
557.3

 
$
656.7

 
$
1,063.4

 
$
1,415.1

 
Net earnings per share from continuing operations:
 
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.60

 
$
1.50

 
$
1.46

 
Diluted
$
0.79

 
$
0.60

 
$
1.48

 
$
1.44

 
Net earnings per share from discontinued operations:
 
 
 
 
 
 
 
 
Basic
$
—

 
$
0.35

 
$
0.03

 
$
0.60

 
Diluted
$
—

 
$
0.34

 
$
0.03

 
$
0.59

 
Net earnings per share:
 
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.95

 
$
1.53

 
$
2.05

*
Diluted
$
0.79

 
$
0.94

 
$
1.51

 
$
2.03

 
Average common stock and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
Basic
695.4

 
690.9

 
694.9

 
689.8

 
Diluted
705.4

 
698.9

 
705.5

 
698.0

 
* Net earnings per share amount does not add due to rounding.
See the accompanying Notes to the Consolidated Condensed Financial Statements.


2
Table of Contents

DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(unaudited)
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Net earnings
$
557.3

 
$
656.7

 
$
1,063.4

 
$
1,415.1

Other comprehensive income (loss), net of income taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
274.9

 
(161.9
)
 
579.2

 
39.2

Pension and postretirement plan benefit adjustments
4.9

 
5.8

 
9.8

 
11.1

Unrealized gain (loss) on available-for-sale securities adjustments
10.9

 
1.4

 
18.2

 
(130.3
)
Total other comprehensive income (loss), net of income taxes
290.7

 
(154.7
)
 
607.2

 
(80.0
)
Comprehensive income
$
848.0

 
$
502.0

 
$
1,670.6

 
$
1,335.1

See the accompanying Notes to the Consolidated Condensed Financial Statements.

3
Table of Contents

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)
 
Noncontrolling Interests
Shares
 
Amount
 
Balance, December 31, 2016
807.7

 
$
8.1

 
$
5,312.9

 
$
20,703.5

 
$
(3,021.7
)
 
$
74.0

Net earnings for the period
—

 
—

 
—

 
1,063.4

 
—

 
—

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
607.2

 
—

Dividends declared
—

 
—

 
—

 
(194.6
)
 
—

 
—

Common stock-based award activity
2.7

 
—

 
112.3

 
—

 
—

 
—

Common stock issued in connection with LYONs’ conversions, including tax benefit
—

 
—

 
0.1

 
—

 
—

 
—

Change in noncontrolling interests
—

 
—

 
(1.2
)
 
—

 
—

 
(68.8
)
Balance, June 30, 2017
810.4

 
$
8.1

 
$
5,424.1

 
$
21,572.3

 
$
(2,414.5
)
 
$
5.2

See the accompanying Notes to the Consolidated Condensed Financial Statements.

4
Table of Contents

DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
Cash flows from operating activities:
 
 
 
Net earnings
$
1,063.4

 
$
1,415.1

Less: earnings from discontinued operations, net of income taxes
22.3

 
411.3

Net earnings from continuing operations
1,041.1

 
1,003.8

Noncash items:
 
 
 
Depreciation
282.4

 
261.9

Amortization
326.4

 
283.4

Stock-based compensation expense
71.4

 
64.9

Restructuring and impairment charges
49.3

 
—

Pretax gain on sale of investments
—

 
(223.4
)
Change in trade accounts receivable, net
72.1

 
(61.5
)
Change in inventories
(45.4
)
 
(104.9
)
Change in trade accounts payable
(104.1
)
 
(42.7
)
Change in prepaid expenses and other assets
186.2

 
104.2

Change in accrued expenses and other liabilities
(308.7
)
 
302.8

Total operating cash provided by continuing operations
1,570.7

 
1,588.5

Total operating cash provided by discontinued operations
—

 
466.1

Net cash provided by operating activities
1,570.7

 
2,054.6

Cash flows from investing activities:
 
 
 
Cash paid for acquisitions
(93.9
)
 
(92.7
)
Payments for additions to property, plant and equipment
(306.5
)
 
(273.5
)
Proceeds from sales of property, plant and equipment
30.0

 
5.2

Proceeds from sale of investments
—

 
264.8

All other investing activities
(2.5
)
 
—

Total investing cash used in continuing operations
(372.9
)
 
(96.2
)
Total investing cash used in discontinued operations
—

 
(69.7
)
Net cash used in investing activities
(372.9
)
 
(165.9
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of common stock
35.8

 
144.8

Payment of dividends
(183.9
)
 
(202.8
)
Payment for purchase of noncontrolling interests
(64.4
)
 
—

Net repayments of borrowings (maturities of 90 days or less)
(2,387.5
)
 
(1,178.0
)
Proceeds from borrowings (maturities longer than 90 days)
1,684.0

 
3,240.9

Repayments of borrowings (maturities longer than 90 days)
(562.4
)
 
(504.1
)
All other financing activities
(37.3
)
 
(26.7
)
Net cash (used in) provided by financing activities
(1,515.7
)
 
1,474.1

Effect of exchange rate changes on cash and equivalents
80.6

 
(56.0
)
Net change in cash and equivalents
(237.3
)
 
3,306.8

Beginning balance of cash and equivalents
963.7

 
790.8

Ending balance of cash and equivalents
$
726.4

 
$
4,097.6

Supplemental disclosures:
 
 
 
Cash interest payments
$
58.4

 
$
102.0

Cash income tax payments
266.3

 
233.1

See the accompanying Notes to the Consolidated Condensed Financial Statements.

5
Table of Contents

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. In this quarterly report, the terms “Danaher” or the “Company” refer to Danaher Corporation, Danaher Corporation and its consolidated subsidiaries or the consolidated subsidiaries of Danaher Corporation, as the context requires. Unless otherwise indicated, all amounts in this quarterly report refer to continuing operations. 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 consolidated condensed financial statements included herein should be read in conjunction with the financial statements as of and for the year ended December 31, 2016 and the Notes thereto included in the Company’s Current Report on Form 8-K filed on June 19, 2017 and the 2016 Annual Report on Form 10-K filed on February 22, 2017 (collectively, the “2016 Annual Report”).
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 June 30, 2017 and December 31, 2016, its results of operations for the three and six-month periods ended June 30, 2017 and July 1, 2016 and its cash flows for each of the six-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 & Postretirement Plan Benefit Adjustments
 
Unrealized Gain (Loss) on Available-For-Sale Securities Adjustments
 
Total
For the Three-Month Period Ended June 30, 2017:
 
 
 
 
 
 
 
Balance, March 31, 2017
$
(2,093.9
)
 
$
(637.3
)
 
$
26.0

 
$
(2,705.2
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
Increase
274.9

 
—

 
17.4

 
292.3

Income tax impact
—

 
—

 
(6.5
)
 
(6.5
)
Other comprehensive income (loss) before reclassifications, net of income taxes
274.9

 
—

 
10.9

 
285.8

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

 
7.6

(a)
—

 
7.6

Income tax impact
—

 
(2.7
)
 
—

 
(2.7
)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
—

 
4.9

 
—

 
4.9

Net current period other comprehensive income (loss), net of income taxes
274.9

 
4.9

 
10.9

 
290.7

Balance, June 30, 2017
$
(1,819.0
)
 
$
(632.4
)
 
$
36.9

 
$
(2,414.5
)
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost. Refer to Note 7 for additional details.

6
Table of Contents

 
Foreign Currency Translation Adjustments
 
Pension & Postretirement Plan Benefit Adjustments
 
Unrealized Gain (Loss) on Available-For-Sale Securities Adjustments
 
Total
For the Three-Month Period Ended July 1, 2016:
 
 
 
 
 
 
 
Balance, April 1, 2016
$
(1,596.3
)
 
$
(642.0
)
 
$
1.8

 
$
(2,236.5
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
(Decrease) increase
(161.9
)
 
—

 
2.3

 
(159.6
)
Income tax impact
—

 
—

 
(0.9
)
 
(0.9
)
Other comprehensive income (loss) before reclassifications, net of income taxes
(161.9
)
 
—

 
1.4

 
(160.5
)
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 

Increase
—

 
8.6

(a)
—

 
8.6

Income tax impact
—

 
(2.8
)
 
—

 
(2.8
)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
—

 
5.8

 
—

 
5.8

Net current period other comprehensive income (loss), net of income taxes
(161.9
)
 
5.8

 
1.4

 
(154.7
)
Balance, July 1, 2016
$
(1,758.2
)
 
$
(636.2
)
 
$
3.2

 
$
(2,391.2
)
For the Six-Month Period Ended June 30, 2017:
 
 
 
 
 
 
 
Balance, December 31, 2016
$
(2,398.2
)
 
$
(642.2
)
 
$
18.7

 
$
(3,021.7
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
Increase
579.2

 
—

 
29.1

 
608.3

Income tax impact
—

 
—

 
(10.9
)
 
(10.9
)
Other comprehensive income (loss) before reclassifications, net of income taxes
579.2

 
—

 
18.2

 
597.4

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

 
15.2

(a)
—

 
15.2

Income tax impact
—

 
(5.4
)
 
—

 
(5.4
)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
—

 
9.8

 
—

 
9.8

Net current period other comprehensive income (loss), net of income taxes
579.2

 
9.8

 
18.2

 
607.2

Balance, June 30, 2017
$
(1,819.0
)
 
$
(632.4
)
 
$
36.9

 
$
(2,414.5
)
For the Six-Month Period Ended July 1, 2016:
 
 
 
 
 
 
 
Balance, December 31, 2015
$
(1,797.4
)
 
$
(647.3
)
 
$
133.5

 
$
(2,311.2
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
Increase
39.2

 
—

 
14.9

 
54.1

Income tax impact
—

 
—

 
(5.6
)
 
(5.6
)
Other comprehensive income (loss) before reclassifications, net of income taxes
39.2

 
—

 
9.3

 
48.5

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

 
16.4

(a)
(223.4
)
(b)
(207.0
)
Income tax impact
—

 
(5.3
)
 
83.8

 
78.5

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

 
11.1

 
(139.6
)
 
(128.5
)
Net current period other comprehensive income (loss), net of income taxes
39.2

 
11.1

 
(130.3
)
 
(80.0
)
Balance, July 1, 2016
$
(1,758.2
)
 
$
(636.2
)
 
$
3.2

 
$
(2,391.2
)
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost. Refer to Note 7 for additional details.
(b) Included in other income in the accompanying Consolidated Condensed Statement of Earnings. Refer to Note 10 for additional details.

7
Table of Contents

New Accounting Standards—In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provided clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply the modification accounting provisions required in Topic 718. The standard is effective for all entities for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The income statement guidance requires application on a retrospective basis. The ASU is effective for public entities for annual periods beginning after December 15, 2017, including interim periods, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718), simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification of certain items on the statement of cash flows and accounting for forfeitures. The Company has adopted this standard effective January 1, 2017. The ASU requires that the difference between the actual tax benefit realized upon exercise or vesting, as applicable, and the tax benefit recorded based on the fair value of the stock award at the time of grant (the “excess tax benefits”) be reflected as a reduction of the current period provision for income taxes with any shortfall recorded as an increase in the tax provision rather than as a component of changes to additional paid-in capital. The ASU also requires the excess tax benefit realized be reflected as operating cash flow rather than a financing cash flow. For the three and six-month periods ended June 30, 2017, the provision for income taxes from continuing operations was reduced and operating cash flow from continuing operations was increased by $7 million and $33 million, respectively, reflecting the impact of adopting this standard. Had this ASU been adopted at January 1, 2016, the provision for income taxes from continuing operations would have been reduced and operating cash flow from continuing operations would have been increased by $12 million and $26 million from the amounts reported for the three and six-month periods ended July 1, 2016, respectively. The actual benefit to be realized in future periods is inherently uncertain and will vary based on the price of the Company’s common stock as well as the timing of and relative value realized for future share-based transactions.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms greater than 12 months. The standard also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. The ASU is effective for public entities for fiscal years beginning after December 15, 2018, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance. The core principle of Topic 606 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. In July 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. In addition, during March, April, May and December 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, respectively, which

8
Table of Contents

clarified the guidance on certain items such as reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs and disclosure of performance obligations. The Company plans to adopt the new standard on January 1, 2018 and expects the impact of the new standard on the amount and timing of revenue recognition to be insignificant. The new standard will require certain costs, primarily commissions on contracts greater than one year in duration, to be capitalized rather than expensed currently. The new standard will also require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts, including judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company expects to use the modified retrospective method of adoption, reflecting the cumulative effect of initially applying the new standard to revenue recognition in the first quarter of 2018.

NOTE 2. ACQUISITIONS
For a description of the Company’s acquisition activity for the year ended December 31, 2016 reference is made to the financial statements as of and for the year ended December 31, 2016 and Note 2 thereto included in the Company’s 2016 Annual Report.
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, anticipated opportunities for synergies from the elimination of redundant facilities and staffing and use of each party’s respective, existing commercial infrastructure to cost-effectively expand sales of the other party’s products and services, 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 2017 and 2016 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.
During the first six months of 2017, the Company acquired three businesses for total consideration of $94 million in cash, net of cash acquired. The businesses acquired complement existing units of the Life Sciences and Environmental & Applied Solutions segments. The aggregate annual sales of these three 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 $65 million. The Company preliminarily recorded an aggregate of $71 million of goodwill related to these acquisitions.
The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the six-month period ended June 30, 2017 ($ in millions):
Trade accounts receivable
$
8.6

Inventories
12.4

Property, plant and equipment
0.9

Goodwill
70.9

Other intangible assets, primarily customer relationships, trade names and technology
27.8

Trade accounts payable
(4.0
)
Other assets and liabilities, net
(22.2
)
Assumed debt
(0.5
)
Net cash consideration
$
93.9


9
Table of Contents

Acquisition of Noncontrolling Interest
In the first quarter of 2017, Danaher acquired the remaining noncontrolling interest associated with one of its prior business combinations for consideration of $64 million. Danaher recorded the increase in ownership interests as a transaction within stockholders’ equity. As a result of this transaction, noncontrolling interests were reduced by $63 million reflecting the carrying value of the interest with the $1 million difference charged to additional paid-in capital.
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the 2017 and 2016 acquisitions as if they had occurred as of January 1, 2016. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions, except per share amounts):
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Sales
$
4,517.8

 
$
4,436.5

 
$
8,740.0

 
$
8,555.6

Net earnings from continuing operations
557.3

 
383.0

 
1,041.4

 
919.3

Diluted net earnings per share from continuing operations
0.79

 
0.55

 
1.48

 
1.32

In the six-month period ended July 1, 2016, unaudited pro forma earnings set forth above were adjusted to include the $23 million pretax impact of nonrecurring acquisition date fair value adjustments to inventory and deferred revenue primarily related to the 2016 acquisition of Cepheid.

NOTE 3. DISCONTINUED OPERATIONS
Fortive Corporation Separation
On July 2, 2016 (the “Distribution Date”), Danaher completed the separation (the “Separation”) of Fortive Corporation (“Fortive”). For additional details on the Separation reference is made to the financial statements as of and for the year ended December 31, 2016 and Note 3 thereto included in the Company’s 2016 Annual Report. The accounting requirements for reporting the Separation of Fortive as a discontinued operation were met when the Separation was completed. Accordingly, the accompanying consolidated condensed financial statements for all periods presented reflect this business as a discontinued operation.
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 Danaher Business System (“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 govern certain relationships between Danaher and Fortive after the Separation. In addition, Danaher is party to various commercial agreements with Fortive entities. The amounts billed for transition services provided under the above agreements as well as commercial sales and purchases to and from Fortive were not material to the Company’s results of operations for the three or six-month periods ended June 30, 2017.
In the six-month period ended June 30, 2017, Danaher recorded a $22 million income tax benefit related to the release of previously provided reserves associated with uncertain tax positions on certain Danaher tax returns which were jointly filed with Fortive entities. These reserves were released due to the expiration of statutes of limitations for those returns. All Fortive entity-related balances were included in the income tax benefit related to discontinued operations.

10
Table of Contents

The key components of income from discontinued operations for the three-month period ended July 1, 2016 and the six-month periods ended June 30, 2017 and July 1, 2016 were as follows ($ in millions):
 
Three-Month Period Ended
 
Six-Month Period Ended
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Sales
$
1,555.1

 
$
—

 
$
3,029.8

Cost of sales
(787.0
)
 
—

 
(1,566.4
)
Selling, general and administrative expenses
(347.0
)
 
—

 
(679.6
)
Research and development expenses
(96.7
)
 
—

 
(190.4
)
Interest expense
(10.9
)
 
—

 
(19.7
)
Earnings from discontinued operations before income taxes
313.5

 
—

 
573.7

Income taxes
(74.8
)
 
22.3

 
(162.4
)
Earnings from discontinued operations, net of income taxes
$
238.7

 
$
22.3

 
$
411.3


NOTE 4. GOODWILL
The following is a rollforward of the Company’s goodwill ($ in millions):
Balance, December 31, 2016
$
23,826.9

Attributable to 2017 acquisitions
70.9

Adjustments due to finalization of purchase price allocations
(54.1
)
Foreign currency translation and other
679.9

Balance, June 30, 2017
$
24,523.6

The carrying value of goodwill by segment is summarized as follows ($ in millions):
 
June 30, 2017
 
December 31, 2016
Life Sciences
$
11,991.1

 
$
11,610.3

Diagnostics
7,006.8

 
6,903.0

Dental
3,304.9

 
3,215.6

Environmental & Applied Solutions
2,220.8

 
2,098.0

Total
$
24,523.6

 
$
23,826.9

The Company has not identified any “triggering” events which indicate a potential impairment of goodwill in the six-month period ended June 30, 2017.

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.

11
Table of Contents

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
June 30, 2017:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
146.2

 
$
49.2

 
$
—

 
$
195.4

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plans
—

 
55.6

 
—

 
55.6

 
 
 
 
 
 
 
 
December 31, 2016:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
117.8

 
$
52.3

 
$
—

 
$
170.1

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plans
—

 
52.2

 
—

 
52.2

Available-for-sale securities, which are included in other long-term assets in the accompanying Consolidated Condensed Balance Sheets, are either measured at fair value using quoted market prices in an active market or if they are not traded on an active market are valued at quoted prices reported by investment brokers and dealers based on the underlying terms of the security and comparison to similar securities traded on an active market.
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 pretax basis, until at or after 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 the Company’s financial instruments were as follows ($ in millions):
 
June 30, 2017
 
December 31, 2016
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
195.4

 
$
195.4

 
$
170.1

 
$
170.1

Liabilities:
 
 
 
 
 
 
 
Notes payable and current portion of long-term debt
169.5

 
169.5

 
2,594.8

 
2,594.8

Long-term debt
11,422.5

 
11,860.8

 
9,674.2

 
10,095.1

As of June 30, 2017 and December 31, 2016, available-for-sale securities were categorized as Level 1 and Level 2, as indicated above, 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 borrowings with original maturities of one year or less, 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
Table of Contents


NOTE 6. FINANCING
As of June 30, 2017, the Company was in compliance with all of its debt covenants. The components of the Company’s debt were as follows ($ in millions):
 
June 30, 2017
 
December 31, 2016
U.S. dollar-denominated commercial paper
$
332.2

 
$
2,733.5

Euro-denominated commercial paper (€3.0 billion and €3.0 billion, respectively)
3,361.8

 
3,127.6

Floating rate senior unsecured notes due 2017 (€500.0 million aggregate principal amount) (the “2017 Euronotes”)
—

 
526.0

0.0% senior unsecured bonds due 2017 (CHF 100.0 million aggregate principal amount) (the “2017 CHF Bonds”)
104.1

 
98.0

1.65% senior unsecured notes due 2018
498.7

 
498.1

1.0% senior unsecured notes due 2019 (€600.0 million aggregate principal amount) (the “2019 Euronotes”)
682.6

 
628.6

2.4% senior unsecured notes due 2020
497.3

 
496.8

5.0% senior unsecured notes due 2020
398.6

 
402.6

Zero-coupon Liquid Yield Option Notes (LYONs) due 2021
68.9

 
68.1

0.352% senior unsecured notes due 2021 (¥30.0 billion aggregate principal amount) (the “2021 Yen Notes”)
265.7

 
255.6

1.7% senior unsecured notes due 2022 (€800.0 million aggregate principal amount) (the “2022 Euronotes”)
908.1

 
836.5

Floating rate senior unsecured notes due 2022 (€250.0 million aggregate principal amount) (the “Floating Rate 2022 Euronotes”)
284.3

 
—

0.5% senior unsecured bonds due 2023 (CHF 540.0 million aggregate principal amount) (the “2023 CHF Bonds”)
564.8

 
532.3

2.5% senior unsecured notes due 2025 (€800.0 million aggregate principal amount) (the “2025 Euronotes”)
908.3

 
836.8

3.35% senior unsecured notes due 2025
496.1

 
495.8

0.3% senior unsecured notes due 2027 (¥30.8 billion aggregate principal amount) (the “2027 Yen Notes”)
272.5

 
—

1.2% senior unsecured notes due 2027 (€600.0 million aggregate principal amount) (the “2027 Euronotes”)
678.6

 
—

1.125% senior unsecured bonds due 2028 (CHF 110.0 million aggregate principal amount) (the “2028 CHF Bonds”)
115.4

 
108.8

0.65% senior unsecured notes due 2032 (¥53.2 billion aggregate principal amount) (the “2032 Yen Notes”)
470.6

 
—

4.375% senior unsecured notes due 2045
499.3

 
499.3

Other
184.1

 
124.6

Total debt
11,592.0

 
12,269.0

Less: currently payable
169.5

 
2,594.8

Long-term debt
$
11,422.5

 
$
9,674.2

For additional details regarding 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, 2016 included in the Company’s 2016 Annual Report.
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. dollar and euro-denominated commercial paper programs. Credit support for the commercial paper programs is generally provided by the Company’s $4.0 billion unsecured, multi-year revolving credit facility with a syndicate of banks that expires on July 10, 2020 (the “Credit Facility”), which can also be used for working capital and other general corporate purposes. In October 2016, the Company expanded its borrowing capacity by entering into a $3.0 billion 364-day unsecured revolving credit facility with a syndicate of banks that expires on October 23, 2017 (the “364-

13
Table of Contents

Day Facility” and together with the Credit Facility, the “Credit Facilities”), to provide additional liquidity support for issuances under the Company’s U.S. dollar and euro-denominated commercial paper programs.
Effective April 21, 2017, the Company reduced the commitment amount under the 364-Day Facility from $3.0 billion to $2.3 billion, and effective June 23, 2017, the Company further reduced the commitment amount under the facility to $1.0 billion, as permitted by the facility. As of June 30, 2017, no borrowings were outstanding under the Credit Facilities, and the Company was in compliance with all covenants under the facility. In addition to the Credit Facilities, the Company has also entered into reimbursement agreements with various commercial banks to support the issuance of letters of credit.
As of June 30, 2017, borrowings outstanding under the Company’s U.S. dollar and euro-denominated commercial paper programs had a weighted average annual interest rate of negative 0.2% and a weighted average remaining maturity of approximately 55 days.
The Company has classified approximately $3.7 billion of its borrowings outstanding under the commercial paper programs as of June 30, 2017 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, to refinance these borrowings for at least one year from the balance sheet date.
Debt discounts, premiums and debt issuance costs totaled $29 million and $25 million as of June 30, 2017 and December 31, 2016, respectively, and have been netted against the aggregate principal amounts of the related debt in the components of debt table above.
2017 Long-Term Debt Issuances
On May 11, 2017, DH Japan Finance S.A. (“Danaher Japan”), a wholly-owned finance subsidiary of the Company, completed the private placement of ¥30.8 billion aggregate principal amount of 0.3% senior unsecured notes due May 11, 2027 (the “2027 Yen Notes”) and ¥53.2 billion aggregate principal amount of 0.65% senior unsecured notes due May 11, 2032 (the “2032 Yen Notes” and together with the 2027 Yen Notes, the “Yen Notes”). The 2027 and 2032 Yen Notes were issued at 100% of their principal amount.
The 2027 and 2032 Yen Notes are fully and unconditionally guaranteed by the Company. The Company received net proceeds, after offering expenses, of approximately ¥83.6 billion (approximately $744 million based on currency exchange rates as of the date of the pricing of the notes) and used the net proceeds from the offering to partially repay commercial paper borrowings. Interest on the 2027 and 2032 Yen Notes is payable semiannually in arrears on May 11 and November 11 of each year, commencing on November 11, 2017.
On June 30, 2017, DH Europe Finance S.A. (“Danaher International”), a wholly-owned finance subsidiary of the Company, completed the underwritten public offering of €250 million aggregate principal amount of floating rate, senior unsecured notes due 2022 (the “2022 Floating Rate Euronotes”) and €600 million aggregate principal amount of 1.2% senior unsecured notes due 2027 (the “2027 Euronotes” and together with the 2022 Floating Rate Euronotes, the “Euronotes”). The 2022 Floating Rate Euronotes were issued at 100.147% of their principal amount, will mature on June 30, 2022 and bear interest at a floating rate equal to three-month EURIBOR plus 0.3% per year (provided that the minimum interest rate is zero). The 2027 Euronotes were issued at 99.682% of their principal amount, will mature on June 30, 2027 and bear interest at the rate of 1.2% 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 €843 million (approximately $940 million based on currency exchange rates as of the date of the pricing of the notes) and used the net proceeds from the offering to repay the €500 million aggregate principal amount of floating rate senior unsecured notes which matured on June 30, 2017 as well as to repay commercial paper borrowings. Interest on the 2022 Floating Rate Euronotes is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on September 30, 2017. Interest on the 2027 Euronotes is payable annually in arrears on June 30 of each year, commencing on June 30, 2018.
The indenture under which the Euronotes were issued contains customary covenants, all of which the Company was in compliance with as of June 30, 2017.
If a change of control triggering event occurs with respect to the Euronotes or the Yen Notes, each holder of such notes may require the Company to repurchase some or all of its notes at a purchase price equal to 101% (in the case of the Euronotes) or 100% (in the case of the Yen Notes) of the principal amount of the Euronotes, plus accrued and unpaid interest (and in the case of the Yen Notes, certain swap-related losses as applicable). 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 or note purchase agreement. Each holder of the Yen Notes may also require the Company to repurchase some or all of its notes at a purchase price equal to 100% of the

14
Table of Contents

principal amount of the notes, plus accrued and unpaid interest and certain swap-related losses as applicable, in certain circumstances whereby such holder comes into violation of economic sanctions laws as a result of holding such notes.
At any time and from time to time prior to March 30, 2027 (three months prior to the maturity date of the 2027 Notes), the Company may redeem the 2027 Notes, in whole or in part, by paying the principal amount and a “make-whole” premium, plus accrued and unpaid interest. In addition, on or after March 30, 2027, the Company will have the right, at its option, to redeem the 2027 Notes, in whole or in part, at any time and from time to time, by paying the principal amount plus accrued and unpaid interest. At any time and from time to time, the Company may redeem the Yen Notes, in whole or in part, by paying the principal amount and a “make-whole” premium, plus accrued and unpaid interest and net of certain swap-related gains or losses as applicable. The Company may also redeem the Euronotes and the Yen Notes upon the occurrence of specified, adverse changes in tax laws, or interpretations under such laws, at a redemption price equal to the principal amount of the notes to be redeemed.
2017 Long-Term Debt Repayments
The €500 million of floating rate senior unsecured notes due in 2017 were repaid upon their maturity in June 2017.
Guarantors of Debt
Danaher has guaranteed long-term debt and commercial paper issued by certain of its wholly-owned subsidiaries. The 2017 Euronotes, 2019 Euronotes, 2022 Euronotes, 2022 Floating Rate Euronotes, 2025 Euronotes and 2027 Euronotes were issued by Danaher International. The 2017 CHF Bonds, 2023 CHF Bonds and 2028 CHF Bonds were issued by DH Switzerland Finance S.A. (“Danaher Switzerland”), a wholly-owned finance subsidiary of the Company. The 2021 Yen Notes, 2027 Yen Notes and 2032 Yen Notes were issued by Danaher Japan. All securities issued by each of Danaher International, Danaher Switzerland and Danaher Japan are fully and unconditionally guaranteed by the Company and these guarantees rank on parity with the Company’s unsecured and unsubordinated indebtedness.
LYONs Redemption
During the six-month period ended June 30, 2017, holders of certain of the Company’s LYONs converted such LYONs into an aggregate of approximately two thousand 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 was transferred to additional paid-in capital as a result of the conversions.


15
Table of Contents

NOTE 7. DEFINED BENEFIT PLANS
The following sets forth the components of the Company’s net periodic benefit cost of the noncontributory defined benefit pension plans ($ in millions):
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
U.S. Pension Benefits:
 
 
 
 
 
 
 
Service cost
$
1.9

 
$
2.3

 
$
3.8

 
$
4.6

Interest cost
21.0

 
22.7

 
42.0

 
45.4

Expected return on plan assets
(32.9
)
 
(33.3
)
 
(65.8
)
 
(66.6
)
Amortization of actuarial loss
6.6

 
6.0

 
13.2

 
12.0

Curtailment gain recognized
—

 
—

 
—

 
(0.7
)
Net periodic pension cost
$
(3.4
)

$
(2.3
)

$
(6.8
)

$
(5.3
)
 
 
 
 
 
 
 
 
Non-U.S. Pension Benefits:
 
 
 
 
 
 
 
Service cost
$
7.9

 
$
9.1

 
$
15.6

 
$
17.9

Interest cost
6.5

 
8.8

 
12.8

 
17.4

Expected return on plan assets
(10.5
)
 
(10.5
)
 
(20.7
)
 
(20.9
)
Amortization of actuarial loss
1.9

 
1.9

 
3.8

 
3.9

Amortization of prior service credit
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.2
)
Net periodic pension cost
$
5.7

 
$
9.2

 
$
11.3

 
$
18.1

The following sets forth the components of the Company’s net periodic benefit cost of the other postretirement employee benefit plans ($ in millions): 
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Service cost
$
0.2

 
$
0.2

 
$
0.4

 
$
0.4

Interest cost
1.3

 
1.4

 
2.6

 
2.8

Amortization of actuarial loss
—

 
0.1

 
—

 
0.2

Amortization of prior service credit
(0.8
)
 
(0.8
)
 
(1.6
)
 
(1.6
)
Net periodic benefit cost
$
0.7

 
$
0.9

 
$
1.4

 
$
1.8

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 2017, the Company’s cash contribution requirements for its U.S. and non-U.S. defined benefit pension plans are expected to be approximately $35 million and $40 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 six-month periods ended June 30, 2017 was 13.6% and 15.4%, respectively, as compared to 36.1% and 30.2% for the three and six-month periods ended July 1, 2016, respectively.
The Company’s effective tax rate for 2017 and 2016 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 three-month period ended June 30, 2017 included a benefit from the release of reserves upon the expiration of statutes of limitations and audit settlements, as well as higher tax benefits from restructuring

16
Table of Contents

charges that are predominantly in the United States, which in aggregate decreased the reported tax rate by 6.9%. The effective tax rate for the six-month period ended June 30, 2017 reflects the aforementioned benefits recorded in the second quarter of 2017 and higher than expected benefits recorded in the first quarter of 2017 related to excess tax benefits from stock-based compensation, which in aggregate reduced the reported tax rate by 5.1%. The effective tax rate for the three-month period ended July 1, 2016 included charges related to repatriation of earnings and legal entity realignments associated with the Separation and other discrete items, which in aggregate increased the effective tax rate by 15.1%. The effective tax rate for the six-month period ended July 1, 2016 included these Separation charges in addition to the impact of a higher tax rate on the gain from the sale of marketable equity securities which in aggregate increased the effective tax rate by 9.6%.
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 1.4 billion including interest through June 30, 2017 (approximately $222 million based on the exchange rate as of June 30, 2017), imposing withholding tax relating to interest accrued in Denmark on borrowings from certain of the Company’s subsidiaries for the years 2004-2009. The Company is currently in discussions with SKAT and anticipates receiving an assessment for years 2010-2012 totaling approximately DKK 853 million including interest through June 30, 2017 (approximately $131 million based on the exchange rate as of June 30, 2017). Management believes the positions the Company has taken in Denmark are in accordance with the relevant tax laws and is vigorously defending 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
Neither the Company nor any “affiliated purchaser” repurchased any shares of Company common stock during the six-month period ended June 30, 2017. 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 June 30, 2017, 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, 2016 included in the Company’s 2016 Annual Report. As of June 30, 2017, approximately 73 million shares of the Company’s common stock were reserved for issuance under the 2007 Omnibus Incentive Plan.
The following summarizes the components of the Company’s stock-based compensation expense ($ in millions):
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Restricted stock units (“RSUs”)/performance stock units (“PSUs”):
 
 
 
 
 
 
 
Pretax compensation expense
$
24.1

 
$
24.0

 
$
45.7

 
$
43.9

Income tax benefit
(7.4
)
 
(7.2
)
 
(14.1
)
 
(12.9
)
RSU/PSU expense, net of income taxes
16.7

 
16.8

 
31.6

 
31.0

Stock options:
 
 
 
 
 
 
 
Pretax compensation expense
13.7

 
11.3

 
25.7

 
21.0

Income tax benefit
(4.4
)
 
(3.5
)
 
(8.2
)
 
(6.5
)
Stock option expense, net of income taxes
9.3

 
7.8

 
17.5

 
14.5

Total stock-based compensation:
 
 
 
 
 
 
 
Pretax compensation expense
37.8

 
35.3

 
71.4

 
64.9

Income tax benefit
(11.8
)
 
(10.7
)
 
(22.3
)
 
(19.4
)
Total stock-based compensation expense, net of income taxes
$
26.0

 
$
24.6

 
$
49.1

 
$
45.5

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 30, 2017, $179 million of total unrecognized compensation cost related to RSUs/PSUs is expected to be recognized over a weighted average period of approximately two

17
Table of Contents

years. As of June 30, 2017, $145 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.
The Company realized a tax benefit of $11 million and $49 million in the three and six-month periods ended June 30, 2017, respectively, related to the exercise of employee stock options and vesting of RSUs. As a result of the adoption of ASU 2016-09, Compensation—Stock Compensation, the excess tax benefit of $7 million and $33 million for the three and six-month periods ended June 30, 2017, has been recorded as a reduction to the current income tax provision and is reflected as an operating cash inflow in the accompanying Consolidated Condensed Statement of Cash Flows. Prior to the adoption of ASU 2016-09, the excess tax benefit was recorded as an increase to additional paid-in capital and was reflected as a financing cash flow.

NOTE 10. NONOPERATING INCOME (EXPENSE)
The Company received $265 million of cash proceeds from the sale of marketable equity securities during the first quarter of 2016. The Company recorded a pretax gain related to this sale of $223 million ($140 million after-tax or $0.20 per diluted share) during the six-month period ended July 1, 2016.

NOTE 11. RESTRUCTURING
For additional details regarding the Company’s restructuring activities, reference is made to Note 14 of the Company’s financial statements as of and for the year ended December 31, 2016 included in the Company’s 2016 Annual Report.
During the three-month period ended June 30, 2017, the Company made the strategic decision to discontinue a molecular diagnostic product line in its Diagnostics segment. As a result, the Company recorded $76 million of pretax restructuring, impairment and other related charges ($51 million after-tax or $0.07 per diluted share). These charges included $49 million of noncash charges for the impairment of certain technology-related intangible assets as well as related inventory and property, plant, and equipment with no further use. In addition, the Company incurred $27 million of cash restructuring costs primarily related to employee severance and related charges. Substantially all restructuring activities related to this discontinued product line were completed in the three-month period ended June 30, 2017.
The restructuring, impairment and other related charges incurred during the three-month period ended June 30, 2017 related to these discontinued product line in the Diagnostics segment are reflected in the following captions in the accompanying Consolidated Condensed Statement of Earnings ($ in millions):
Cost of sales
$
20.7

Selling, general and administrative expenses
55.2

Total
$
75.9


NOTE 12. COMMITMENTS AND 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, 2016 included in the Company’s 2016 Annual Report.
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.

18
Table of Contents

The following is a rollforward of the Company’s accrued warranty liability ($ in millions):
Balance, December 31, 2016
$
75.8

Accruals for warranties issued during the period
24.4

Settlements made
(26.8
)
Additions due to acquisitions
1.2

Effect of foreign currency translation
2.3

Balance, June 30, 2017
$
76.9


NOTE 13. 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-month periods ended June 30, 2017, approximately four 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. For both the three and six-month periods ended July 1, 2016 there were no anti-dilutive options to purchase shares excluded from the diluted EPS from continuing operations calculation.

19
Table of Contents

Information related to the calculation of net earnings per share from continuing operations 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-Month Period Ended June 30, 2017:
 
 
 
 
 
Basic EPS
$
557.3

 
695.4

 
$
0.80

Adjustment for interest on convertible debentures
0.5

 
—

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

 
7.1

 
 
Incremental shares from assumed conversion of the convertible debentures
—

 
2.9

 
 
Diluted EPS
$
557.8

 
705.4

 
$
0.79

 
 
 
 
 
 
For the Three-Month Period Ended July 1, 2016:
 
 
 
 
 
Basic EPS
$
418.0

 
690.9

 
$
0.60

Adjustment for interest on convertible debentures
0.5

 
—

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

 
5.7

 
 
Incremental shares from assumed conversion of the convertible debentures
—

 
2.3

 
 
Diluted EPS
$
418.5

 
698.9

 
$
0.60

 
 
 
 
 
 
For the Six-Month Period Ended June 30, 2017:
 
 
 
 
 
Basic EPS
$
1,041.1

 
694.9

 
$
1.50

Adjustment for interest on convertible debentures
1.0

 
—

 
 
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
—

 
2.9

 
 
Diluted EPS
$
1,042.1

 
705.5

 
$
1.48

 
 
 
 
 
 
For the Six-Month Period Ended July 1, 2016:
 
 
 
 
 
Basic EPS
$
1,003.8

 
689.8

 
$
1.46

Adjustment for interest on convertible debentures
0.9

 
—

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

 
5.9

 
 
Incremental shares from assumed conversion of the convertible debentures
—

 
2.3

 
 
Diluted EPS
$
1,004.7

 
698.0

 
$
1.44



20
Table of Contents

NOTE 14. SEGMENT INFORMATION
The Company operates and reports its results in four separate business segments consisting of the Life Sciences, Diagnostics, Dental and Environmental & Applied Solutions segments. When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. Operating profit represents total revenues less operating expenses, excluding nonoperating income and expense, interest and income taxes. Intersegment amounts are not significant and are eliminated to arrive at consolidated totals. There has been no material change in total assets or liabilities by segment since December 31, 2016.
Segment results are shown below ($ in millions):
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Sales:
 
 
 
 
 
 
 
Life Sciences
$
1,384.3

 
$
1,328.3

 
$
2,692.4

 
$
2,586.4

Diagnostics
1,440.0

 
1,257.6

 
2,767.3

 
2,393.8

Dental
702.6

 
714.6

 
1,358.1

 
1,370.5

Environmental & Applied Solutions
983.2

 
941.4

 
1,898.0

 
1,815.3

Total
$
4,510.1

 
$
4,241.9

 
$
8,715.8

 
$
8,166.0

 
 
 
 
 
 
 
 
Operating profit:
 
 
 
 
 
 
 
Life Sciences
$
221.6

 
$
192.2

 
$
433.2

 
$
369.4

Diagnostics
157.6

 
232.2

 
312.2

 
412.4

Dental
109.8

 
109.2

 
199.2

 
204.3

Environmental & Applied Solutions
235.2

 
218.3

 
443.2

 
416.7

Other
(40.5
)
 
(41.8
)
 
(80.2
)
 
(79.6
)
Total
$
683.7

 
$
710.1

 
$
1,307.6

 
$
1,323.2




21
Table of Contents

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 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, 2016 and Notes thereto, included in the Company’s Current Report on Form 8-K filed on June 19, 2017 and the 2016 Annual Report on Form 10-K filed on February 22, 2017 (collectively, the “2016 Annual Report”) and the Company’s Consolidated Condensed Financial Statements and related Notes as of and for the three and six-month periods ended June 30, 2017 included in this Report.
Unless otherwise indicated, all references in this report refer to continuing operations.

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, divestitures, spin-offs, split-offs or other distributions, 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; regulatory approvals; 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,” “will,” “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 growth could suffer if the markets into which we sell our products and services (references to products and services in this report also include software) 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.

22
Table of Contents

•
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.
•
Certain of our businesses are subject to extensive regulation by the U.S. Food and Drug Administration and by comparable agencies of other countries, as well as laws regulating fraud and abuse in the health care industry and the privacy and security of health information. Failure to comply with those regulations could adversely affect our reputation and financial statements.
•
The health care 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.
•
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 recent acquisitions of Pall and Cepheid), 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 disposed could adversely affect our financial statements.
•
We could incur significant liability if the 2016 spin-off of Fortive or the 2015 split-off of our communications business is determined to be a taxable transaction.
•
Potential indemnification liabilities related to the 2016 spin-off of Fortive and the 2015 split-off of our communications business could materially and adversely affect our business and financial statements.
•
A significant disruption in, or breach in security of, our information technology systems or violation of data privacy laws could adversely affect our business, reputation and 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 our business, including our reputation.
•
Our restructuring actions could have long-term adverse effects on our business.
•
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.
•
Changes in tax law relating to multinational corporations could adversely affect our tax position.
•
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 business and 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.
•
The United States government has certain rights to use and disclose some of the intellectual property that we license and could exclusively license it to a third-party if we fail to achieve practical application of the intellectual property.

23
Table of Contents

•
Defects and unanticipated use or inadequate disclosure with respect to our products 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.
•
Certain of our businesses rely on relationships with collaborative partners and other third-parties for development, supply and marketing of certain products and potential products, and such collaborative partners or other third-parties could fail to perform sufficiently.
•
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 laws or 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, trade and business factors could negatively affect our financial statements.
•
The results of the European Union membership referendum in the United Kingdom and their formal notice of withdrawal from the European Union could adversely affect customer demand, our relationships with customers and suppliers and our business and 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.
•
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 2016 Annual Report 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. Except to the extent required by applicable law, 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 innovation and technological development (particularly with respect to computing, mobile connectivity, artificial intelligence, 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,

24
Table of Contents

consummate and integrate appropriate acquisitions, develop innovative and differentiated new products and services 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, sales from existing businesses increased 2.0% during the second quarter of 2017 as compared to the comparable period of 2016. Increased demand for the Company’s products and services on an overall basis, together with the Company’s continued investments in sales growth initiatives and the other business-specific factors discussed below contributed to year-over-year sales growth. Geographically, year-over-year sales growth rates from existing businesses during the second quarter of 2017 were led by the high-growth markets. Sales from existing businesses in high-growth markets grew at a mid-single digit rate during the second quarter of 2017 as compared to the comparable period of 2016 led primarily by continued strength in China and India, partially offset by weakness in the Middle East. High-growth markets represented approximately 31% of the Company’s total sales in the second quarter of 2017. Sales from existing businesses in developed markets grew at a low-single digit rate during the second quarter of 2017 led primarily by growth in North America. The Company expects overall sales growth to continue for the remainder of 2017 and core growth rates to improve in the remainder of 2017 but remains cautious about challenges due to macro-economic and geopolitical uncertainties, including global uncertainties related to monetary, fiscal and trade policies.
The Company regularly evaluates market needs and conditions with the objective of positioning itself to provide superior products and services to its customers in a cost-efficient manner. Consistent with this approach, during the three-month period ended June 30, 2017, the Company made the strategic decision to discontinue a molecular diagnostic product line in its Diagnostics segment. As a result, the Company recorded $76 million of pretax restructuring, impairment and other related charges ($51 million after-tax or $0.07 per diluted share). These charges included $49 million of noncash charges for the impairment of certain technology-related intangible assets as well as related inventory and property, plant, and equipment with no further use. In addition, the Company incurred $27 million of cash restructuring costs primarily related to employee severance and related charges. These restructuring charges are expected to result in annual savings in 2018 of approximately $40 million.
Acquisitions
During the first six months of 2017, the Company acquired three businesses for total consideration of $94 million in cash, net of cash acquired. The businesses acquired complement existing units of the Life Sciences and Environmental & Applied Solutions segments. The aggregate annual sales of these three 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 $65 million. The Company preliminarily recorded an aggregate of $71 million of goodwill related to these acquisitions.
Currency Exchange Rates
On a year-over-year basis, currency exchange rates adversely impacted reported sales by approximately 1.5% for both the three and six-month periods ended June 30, 2017 primarily due to the strength of the U.S. dollar against several major currencies in the first six months of 2017 compared to 2016. If the currency exchange rates in effect as of June 30, 2017 were to prevail throughout the remainder of 2017, currency exchange rates would have a negligible impact on the Company’s estimated full year 2017 sales as the U.S. dollar is currently weaker in comparison with rates experienced in the second half of 2016 which would offset the negative sales impact reported in the first half of 2017. Any future strengthening of the U.S. dollar against major currencies would adversely impact the Company’s sales and results of operations, and any weakening of the U.S. dollar against major currencies would positively impact the Company’s sales and results of operations for the remainder of the year.


25
Table of Contents

RESULTS OF OPERATIONS
Non-GAAP Measures
In this report, references to the non-GAAP measure of sales from existing businesses (also referred to as “core sales” or “core revenues”) refer to sales from continuing operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding:
•
sales from acquired businesses and
•
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 less the amount of sales and operating profit, as applicable, attributable to divested product lines not considered discontinued operations. The portion of revenue attributable to currency translation is calculated as the difference between:
•
the period-to-period change in revenue (excluding sales from acquired businesses) and
•
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 Danaher’s business and facilitating comparisons of Danaher’s revenue performance with its performance in prior and future periods and to Danaher’s peers. Management also uses sales from existing businesses to measure the Company’s operating and financial performance. 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 and divestiture-related items because the nature, size, timing and number of acquisitions and divestitures 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. Throughout this discussion, references to sales volume refer to the impact of both price and unit sales and references to productivity improvements generally refer to improved cost-efficiencies resulting from the ongoing application of the Danaher Business System.
Sales Growth (GAAP)
 
% Change Three-Month Period Ended June 30, 2017 vs. Comparable 2016 Period
 
% Change Six- Month Period Ended June 30, 2017 vs.
Comparable 2016 Period
Total sales growth
6.5
%
 
6.5
%
Components of Sales Growth (non-GAAP)
 
% Change Three-Month Period Ended June 30, 2017 vs. Comparable 2016 Period
 
% Change Six- Month Period Ended June 30, 2017 vs.
Comparable 2016 Period
Existing businesses (core sales)
2.0
 %
 
2.5
 %
Acquisitions and other
6.0
 %
 
5.5
 %
Currency exchange rates
(1.5
)%
 
(1.5
)%
Total
6.5
 %
 
6.5
 %

26
Table of Contents

Operating profit margins were 15.2% for the three-month period ended June 30, 2017 as compared to 16.7% in the comparable period of 2016.
Second quarter 2017 vs. second quarter 2016 operating profit margin comparisons were favorably impacted by:
•
Higher 2017 sales volumes from existing businesses and incremental year-over-year cost savings associated with the ongoing restructuring actions and continuing productivity improvement initiatives taken in 2016, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments, and the impact of the stronger U.S. dollar in 2017 - 70 basis points
Second quarter 2017 vs. second quarter 2016 operating profit margin comparisons were unfavorably impacted by:
•
Restructuring, impairment and other related charges related to discontinuing a product line in the second quarter of 2017 related to the Diagnostic segment - 170 basis points
•
The incremental net dilutive effect in 2017 of acquired businesses - 50 basis points
Operating profit margins were 15.0% for the six-month period ended June 30, 2017 as compared to 16.2% in the comparable period of 2016.
Year-to-date 2017 vs. year-to-date 2016 operating profit margin comparisons were favorably impacted by:
•
Higher 2017 sales volumes from existing businesses and incremental year-over-year cost savings associated with the ongoing restructuring actions and continuing productivity improvement initiatives taken in 2016, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments, and the impact of the stronger U.S. dollar in 2017 - 30 basis points
Year-to-date 2017 vs. year-to-date 2016 operating profit margin comparisons were unfavorably impacted by:
•
Restructuring, impairment and other related charges related to discontinuing a product line in the second quarter of 2017 related to the Diagnostic segment - 85 basis points
•
The incremental net dilutive effect in 2017 of acquired businesses - 65 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($ in millions):
 
Three-Month Period Ended
 
Six-Month Period Ended
 
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Life Sciences
$
1,384.3

 
$
1,328.3

 
$
2,692.4

 
$
2,586.4

Diagnostics
1,440.0

 
1,257.6

 
2,767.3

 
2,393.8

Dental
702.6

 
714.6

 
1,358.1

 
1,370.5

Environmental & Applied Solutions
983.2

 
941.4

 
1,898.0

 
1,815.3

Total
$
4,510.1

 
$
4,241.9

 
$
8,715.8

 
$
8,166.0


LIFE SCIENCES
The Company’s Life Sciences segment offers a broad range of research tools that scientists use to study the basic building blocks of life, including genes, proteins, metabolites and cells, in order to understand the causes of disease, identify new therapies and test new drugs and vaccines.  The segment, through its Pall business, is also a leading provider of filtration, separation and purification technologies to the biopharmaceutical, food and beverage, medical, aerospace, microelectronics and general industrial segments.

27
Table of Contents

Life Sciences Selected Financial Data
 
Three-Month Period Ended
 
Six-Month Period Ended
($ in millions)
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Sales
$
1,384.3

 
$
1,328.3

 
$
2,692.4

 
$
2,586.4

Operating profit
221.6

 
192.2

 
433.2

 
369.4

Depreciation
29.0

 
30.1

 
59.1

 
62.2

Amortization
76.4

 
75.3

 
153.0

 
147.2

Operating profit as a % of sales
16.0
%
 
14.5
%
 
16.1
%
 
14.3
%
Depreciation as a % of sales
2.1
%
 
2.3
%
 
2.2
%
 
2.4
%
Amortization as a % of sales
5.5
%
 
5.7
%
 
5.7
%
 
5.7
%
Sales Growth (GAAP)
 
% Change Three-Month Period Ended June 30, 2017 vs. Comparable 2016 Period
 
% Change Six- Month Period Ended June 30, 2017 vs.
Comparable 2016 Period
Total sales growth
4.0
%
 
4.0
%
Components of Sales Growth (non-GAAP)
 
% Change Three-Month Period Ended June 30, 2017 vs. Comparable 2016 Period
 
% Change Six- Month Period Ended June 30, 2017 vs.
Comparable 2016 Period
Existing businesses (core sales)
3.5
 %
 
3.5
 %
Acquisitions and other
2.5
 %
 
2.0
 %
Currency exchange rates
(2.0
)%
 
(1.5
)%
Total
4.0
 %
 
4.0
 %
During the first quarter of 2017, a product line was transferred from the Life Sciences segment to the Environmental & Applied Solutions segment. While this change is not material to segment results in total, the resulting change in sales growth has been included in the “Acquisitions and other” line in the table above.
Price increases in the segment contributed 0.5% to sales growth on a year-over-year basis during both the three and six-month periods ended June 30, 2017, and are reflected as a component of the change in sales from existing businesses.
Sales of the business’ broad range of mass spectrometers grew on a year-over-year basis during both the three and six-month periods ended June 30, 2017, led by strong sales growth in China and Western Europe, across the food, pharmaceutical and academic end-markets, partially offset by declines in demand in the clinical end-market in the United States. Sales of microscopy products grew on a year-over-year basis during the six-month period ended June 30, 2017, due primarily to increased demand in the high-growth markets. For the three-month period ended June 30, 2017, increased microscopy demand in the high-growth markets was partially offset by lower demand in North America, primarily in the medical and life science research end-markets. Demand for the business’ flow cytometry and genomics products was strong across all major product lines in both the three and six-month periods ended June 30, 2017 as compared to the comparable periods in 2016, due to strong demand in North America and China, partially offset by declines in demand in Japan. Demand for filtration, separation and purification technologies increased in both the three and six-month periods ended June 30, 2017 as compared to the comparable periods in 2016, primarily in the biopharmaceutical, medical and microelectronics end-markets. For these businesses, increased demand in the developed markets, particularly North America and Asia, was partially offset by declines in the Middle East, largely due to a major project in 2016 which did not repeat in 2017.

28
Table of Contents

Operating profit margins increased 150 basis points during the three-month period ended June 30, 2017 as compared to the comparable period of 2016. The following factors favorably impacted year-over-year operating profit margin comparisons:
•
Higher 2017 sales volumes from existing businesses and incremental year-over-year cost savings associated with the ongoing restructuring actions and continuing productivity improvement initiatives taken in 2016, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments in 2017 and the impact of the stronger U.S. dollar in 2017 - 120 basis points
•
The incremental net accretive effect in 2017 of acquired businesses and intersegment product line transfers - 30 basis points
Operating profit margins increased 180 basis points during the six-month period ended June 30, 2017 as compared to the comparable period of 2016. The following factors favorably impacted year-over-year operating profit margin comparisons:
•
Higher 2017 sales volumes from existing businesses and incremental year-over-year cost savings associated with the ongoing restructuring actions and continuing productivity improvement initiatives taken in 2016, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments in 2017 and the impact of the stronger U.S. dollar in 2017 - 145 basis points
•
The incremental net accretive effect in 2017 of acquired businesses and intersegment product line transfers - 35 basis points

DIAGNOSTICS
The Company’s Diagnostics segment offers analytical instruments, reagents, consumables, software and services that hospitals, physicians’ offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions.
Diagnostics Selected Financial Data
 
Three-Month Period Ended
 
Six-Month Period Ended
($ in millions)
June 30, 2017
 
July 1, 2016
 
June 30, 2017
 
July 1, 2016
Sales
$
1,440.0

 
$
1,257.6

 
$
2,767.3

 
$
2,393.8

Operating profit
157.6

 
232.2

 
312.2

 
412.4

Depreciation
91.6

 
81.9