Danaher Corp (DHR) 2004 Q4 法說會逐字稿

Good morning.

My name is Elizabeth and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Danaher Corporation fourth-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Mr. Wilson, you may now begin your conference.

Good morning, everyone, and thanks for joining us today.

With me is Larry Culp, our President and Chief Executive Officer;

Pat Allender, our Executive Vice President and Chief Financial Officer; and Dan Comas, our Senior Vice President.

I would like to point out that our earnings release is available on our website under the heading Investor Events.

As our year-end form 10-K has not yet been filed, we have included as part of the earnings release the fourth-quarter income statement and the year-end balance sheet, income statement, and cash flow statements.

In addition, we have included 2004 quarterly segment data, as well as supplemental income data in the release to facilitate your analysis.

Our website address is www.danaher.com.

Additionally, access to a webcast presentation supplementing today's call can be found under the same heading, Investor Events.

This call can be replayed through January 31 and the audio portion will be archived on our website later today and will remain archived until our next quarterly call.

The replay number is 800-642-1687 and the confirmation code is 1307910.

I will repeat this information at the end of the call for the late arrivals.

I would also like to note that in order to help you understand the Company's direction, we will be making some forward-looking statements during the call which involve risks and uncertainties.

These risks and uncertainties are related to customers; supplier relationships and prices; competition; market demand; litigation and other contingent liabilities; the integration and operation of acquired businesses; and economic, political, governmental, and technological factors affecting the Company's operations, markets, product, services and prices, among others, as set forth in the company's SEC filings.

It is possible that actual results might differ from those predictions that we might make today.

Additional information regarding the factors that may cause actual results to differ from these predictions is available in our SEC filings.

With respect to any non-GAAP financial measures provided during the call today, the accompanying information required by SEC Regulation G relating to those measures can be found on our website, www.danaher.com, under the section Investor News.

With that, I would like to turn the call over to Larry.

Thanks, Andy.

Good morning, everyone.

We were very pleased to report this morning that our fourth-quarter earnings per share were 67 cents, representing another record fourth quarter for Danaher and a 26 percent increase over last year's fourth-quarter earnings per share of 53 cents.

Please remember that last year's fourth quarter included a $22.5 million pretax, or approximately a 5 cents per share gain, related to the curtailment of the Company's cash balance pension plan.

Excluding this gain, earnings per share for the fourth quarter increased 40 percent versus the same period a year ago.

Revenues for the quarter increased 33 percent to a record $1.98 billion, as revenues from existing businesses, also described as core revenues, grew 8.5 percent.

Acquisitions contributed an increase of 25.5 percent and positive currency effects contributed an increase of 2.5 percent for the quarter.

As we mentioned throughout 2004, there were three fewer selling days in the fourth quarter, representing the offset to the three extra days we experienced in the first quarter.

This had a negative impact of approximately 3.5 percent on reported revenues during the fourth quarter.

For the 2004 full year, revenues increased 30 percent to a record $6.89 billion.

Revenues from existing businesses contributed an increase of 9 percent.

Acquisitions contributed 18.5 percent and a positive currency impact contributed 2.5 percent.

Our gross margin for the fourth quarter improved from 40.6 percent in 2003 to 42.2 percent in the fourth quarter of 2004.

Continued leverage from higher revenues, the impact of ongoing cost reductions in our existing businesses, including low-cost region initiatives, both in sourcing and production, as well as the higher gross margins in our recently acquired businesses, primarily Radiometer, drove this improvement.

Gross margins for the full year improved 160 basis points to 42 percent, due primarily to these same factors.

Selling general, and administrative expenses for the fourth quarter were 26.4 percent of sales versus 24.5 percent a year ago.

For the full year, SG&A expenses have increased 120 basis points over last year to 26.1 percent due to the higher SG&A structures in our recently acquired businesses, primarily Radiometer and KaVo, as well as from the effect of over $20 million of future growth and cost reduction investments approved throughout 2004.

Operating profit for the quarter was $316 million, a 21 percent increase.

For the full year, operating profit was $1.1 billion, representing a 31 percent increase over last year.

Excluding the impact of the gain on the pension curtailment recognized in the fourth quarter of 2003, operating profit for the fourth quarter and the full year improved by 32 percent and 34 percent, respectively.

Operating margins for the fourth quarter were 16 percent, the same as in 2003, excluding the prior-year gain on pension plan curtailment, which impacted year-over-year margins by 160 basis points.

Current year operating margins were negatively impacted by over 100 basis points due to the lower margins of our 2004 acquisitions, primarily KaVo.

For the year ended December 31, 2004, operating margins were 16 percent, up 50 basis points before the effect of the gain on pension plan curtailment.

The effect of 2004 acquisitions lowered overall operating margins by an additional 50 basis points.

Net interest expense for the fourth quarter was $11.5 million, compared with $12.1 million for the fourth quarter of last year.

The reduction was primarily due to the completion of the amortization of origination costs related to our zero coupon convertible notes, which occurred in January of 2004, as well as higher rates on short-term investments, which offset lower average invested cash balances.

As expected, our effective income tax rate for the fourth quarter was 28.5 percent versus 32 percent in the fourth quarter of 2003, primarily a reflection of the growing percentage of profitability generated by our international operations.

Net income was $218 million, a 28 percent increase over the fourth quarter of 2003.

Excluding the gain on pension plan curtailment, net income rose 40 percent for the quarter.

Net income for the full year was $746 million, an increase of 39 percent over 2003.

Cash flow generation continues to be robust, with operating cash flows of just over $1 billion for 2004, representing a 20 percent increase over 2003.

A combination of strong earnings growth and a modest working capital reduction contributed to this performance.

For the year, we continue to make progress on working capital as total working capital levels declined by $21 million in spite of more than $100 million of additional receivables resulting from our strong revenue performance.

Free cash flow, defined as operating cash flow less capital expenditures, was a record $917 million for 2004, representing a 17.5 percent increase.

Our free cash to net income conversion ratio for the year remained solid at 123 percent. 2004 marked the 13th consecutive year in which our free cash flow exceeded our net income, continued evidence of the strength of the Danaher business system.

Capital expenditures for 2004 increased 44 percent to $116 million.

The balance sheet remains strong, with a debt to total capital ratio of 22.6 percent and over $600 million in cash and cash equivalents at year end.

Turning to operating performance, we are announcing today changes to our reporting segmentation.

With the recent addition of the Medical Technology platform in 2004 and the increasing relative size of the Process/Environmental Control segment, we felt it appropriate to review our existing reporting.

As a result of that review, our financial reporting has been expanded to encompass three segments.

The businesses previously included in the Process/Environmental Control segment will now be represented by two segments, Professional Instrumentation and Industrial Technologies.

The Tools and Components segment is unchanged.

Included within the Professional Instrumentation segment will be our Environmental, Medical Technologies, and Electronic Test platforms.

Our Industrial Technologies segment will include our Motion and Product Identification platforms, as well as the focused niche businesses that were previously included in the Process/Environmental Controls segment.

Today's discussion and our upcoming 2004 10-K will reflect these changes.

However, to assist you with comparisons to prior periods, we have also included with the press release segment information prepared on a basis consistent with our historical presentation methodology.

Starting then with our Professional Instrumentation segment, revenues increased 70.5 percent for the quarter to $935 million.

Revenues from existing businesses contributed 9.5 percent; acquisitions contributed 61 percent; currency gains contributed 3.5 percent, while the impact from fewer days in the quarter reduced growth by approximately 3.5 percent.

Full-year 2004 revenues increased 52 percent to $2.9 billion, as revenues from existing businesses grew 8.5 percent, acquisitions contributed 39.5 percent and currency gains contributed 4 percent.

Operating margins for the quarter were 18.3 percent, down 160 basis points versus the prior year, primarily the result of recent acquisitions, principally KaVo, which had a dilutive impact on segment margins by approximately 400 basis points.

For 2004, operating margins were 18.7 percent, flat versus the prior year despite a 200 basis point dilutive effect from acquisitions.

KaVo operating margins in the fourth quarter were in the mid-single digit range and included an additional month of revenues as we closed the one month reporting lag during the fourth quarter.

Environmental revenues for the quarter improved 15 percent, with core revenues accounting for growth of 8.5 percent, acquisitions contributing 6.5 percent, a positive currency impact of 3.5 percent and a negative impact from fewer days of 3.5 percent.

Both our Water Quality businesses and Gilbarco Veeder-Root delivered solid core growth performances during the quarter despite tougher comparisons.

In 2004, Environmental revenues grew 16 percent, with revenues from existing businesses contributing 9 percent, acquisitions contributing 3 percent and currency gains contributing 4 percent.

Our Water Quality Group revenues grew high single digits in the fourth quarter led by a robust performance from both the Hach Lange business and Hach Ultra Analytics.

Hach Lange core revenue growth remained strong across all major geographies, with continued strength in China, which was up more than 60 percent versus last year.

For the quarter, growth was up in the mid-single digit range, with the U.S. stronger than Europe and sales of our processed products stronger than lab products.

The group made significant progress in sourcing from low-cost regions in 2004 as they exited the year with nearly a quarter of their total sourcing activity coming from low-cost regions.

Hach Ultra Analytics' revenue growth accelerated in the fourth quarter as mid-teens core growth was again driven by strength in the U.S. and Asia, with particular success with flat-panel display manufacturers and in the food and beverage market.

The acquisition of Trojan Technologies, a leader in ultraviolet disinfection, was completed during the quarter and integration plans are on track.

Trojan's pro forma revenues grew at a low teens rate for the fourth quarter, driven in part by key programs such as the new UV drinking water disinfection system in Holland.

Earlier this week, we also announced key orders from the cities of Winnipeg and Calgary, who selected Trojan to supply complete wastewater UV disinfection systems for their municipal facilities.

Gilbarco Veeder-Root grew at a mid-single digit core revenue rate in the fourth quarter despite a very strong prior year comparison.

Solid performances in both North America and China capped an outstanding performance, with full year core revenue growth in the low double digit range.

During the quarter, Gilbarco signed two new multi-million dollar tenders with Conoco and Sunoco for retail petroleum dispensers.

Electronic Test revenues grew 20.5 percent in the quarter, with core revenue contributing 12.5 percent, acquisitions contributing 8.5 percent, a favorable currency impact of 3 percent, and a negative impact from fewer days of approximately 3.5 percent.

Full-year revenues for Electronic Test increased 19.5 percent, as revenues from existing businesses grew 8.5 percent, acquisitions contributed 7.5 percent, and currency gains contributed 3.5 percent.

Fluke's low single digit core revenue growth was driven by continued strength in the U.S., industrial, and European electrical channels, with China continuing to grow at a double-digit rate.

Year-over-year growth was muted by the expiration of a multi-year resale agreement for benchtop test equipment in the early part of 2004.

Active marketing and new product programs helped drive core revenue growth at key distributors such as Grainger and Wesco, which were both up double digits during the quarter.

And Raytech finished a great year on a very strong note, with sales of its new Ti30 thermography products achieving their highest monthly sales levels to date in the month of December.

Fluke Networks' core revenues for the quarter grew more than 30 percent, driven by strong new product sales including the EtherScope and DTX Cable Analyzer.

Also during the quarter, Fluke Networks delivered on significant orders from telecom customers, primarily SBC, for whom we provide innovative solutions for their next generation initiatives, such as high-speed Internet and HDTV video services.

For the full year, Fluke Networks' core revenues grew approximately 20 percent, driven by strong sales in North America.

Our acquisition of the Cardinal Health medical test instrument business was completed during the fourth quarter.

With annual revenues of $25 million, this Cleveland, Ohio-based company manufactures ionizing radiation detection and measurement equipment and is an important addition to Fluke's Biomedical business, providing both product breadth and scale.

Fluke Biomedical is now a $60 million operation and has one of the broadest sets of solutions available for biomed and medical field service organizations.

Also during the fourth quarter we announced the signing of a definitive agreement to acquire LEM Instruments.

LEM Instruments produces and sells a comprehensive line of electrical measurement solutions used in both commercial and industrial applications, such as power quality measurement within laboratories.

With fiscal 2004 revenues of approximately $45 million, LEM is expected to strengthen Fluke's geographic footprint, particularly in Europe, as well as expand its product offerings.

This transaction remains subject to regulatory approvals and other customary closing conditions.

We are anticipating a first-quarter closing.

Moving to Medical Technology, pro forma revenues for the fourth quarter were flat when compared to 2003, as strength from Radiometer was offset by a low single-digit decline at KaVo.

The declines at KaVo are the result of lapping significant prior year promotional activity in the U.S. and Japan, we as discussed last quarter. 2004 pro forma revenues for the Medical Technology platform increased mid single digit versus 2003.

Radiometer, a leader in critical care diagnostics, grew revenues at a high single digit level on a pro forma basis, driven by strong instrument placements and related accessories sales, with all major geographies contributing to this performance.

Year-to-date Radiometer revenues also grew at a high single digit rate on a pro forma constant currency basis.

The key new product launch at Radiometer in 2004 was the ABL800, our new best-in-class, highly accurate, fast and easy-to-use diagnostic system, which will enable Radiometer to grow its installed base as well as related consumables in 2005 and beyond.

DBS implementation at Radiometer continues to gain traction.

Facility rationalization activities are underway and we have reduced our facility count from four to two here within the first year.

We have marked the first anniversary of Radiometer with Danaher.

We have been extremely pleased with the integration and are particularly appreciative of the excellent performance by the entire Radiometer team.

KaVo, a global leader in dental equipment, grew sales of their new digital panoramic system by more than 50 percent during the quarter, driven by strong market acceptance of the Gendex 9200 series.

Operationally, we have completed the consolidation of two of our KaVo North American production facilities into our Des Plaines operations, with production already underway.

In Biberach, Germany, integration activities are on track as we continue discussions with the local works council to realign and streamline our operations there.

Moving to the new Industrial Technology segment, revenues increased 16 percent for the quarter to $699 million.

Revenues from existing businesses contributed an increase of 8 percent, acquisitions contributed an 8.5 percent gain.

Currency gains provided an increase of 3 percent, which was offset by the impact of fewer days of approximately 3.5 percent.

Full-year 2004 revenues increased 22.5 percent to $2.7 billion, as revenues from existing businesses contributed 9 percent, acquisitions 10.5 percent, and currency gains of 3 percent.

Operating margins for the quarter were 15.2 percent, a 20 basis point improvement versus the same period last year.

For 2004, operating margins also increased 20 basis points to 14.7 percent.

Product Identification revenues improved 28.5 percent during the quarter, with core revenues growing 5 percent, acquisitions contributing 23.5 percent, and currency gains contributing 3.5 percent, again offset by the impact of fewer days of approximately 3.5 percent.

Growth continued to be broad-based across the product portfolio, with strength coming from CIJ equipment sales and service in both North America and Asia.

Revenues for the full year increased 38.5 percent, as revenues from existing businesses grew 6 percent, acquisitions contributed 29 percent, and currency gains contributing 3.5 percent.

Also in December, Videojet won a multi-million dollar, seven-year contract to become the exclusive provider of variable coding solutions for Campina, a EUR3.5 billion dairy cooperative headquartered in the Netherlands, for the application of over 5 billion codes per year.

At Accu-Sort, pro forma revenues improved more than 30 percent during the quarter, driven by strong U.S. postal revenues.

We continue to make progress with our RFID business and have received commitments from two major U.S. retailers for sortation readers and label print applicators.

We are busy working with a number of Wal-Mart suppliers on automated RFID label print applications and have completed recent installations for Schering-Plough and Garrett (ph), a major clothing supplier.

The acquisition of Linx Printing Technologies was completed earlier this month.

Linx brings with it an outstanding distributor network in key markets such as Germany, Japan, and the U.S.

They also provide an opportunity to begin including Videojet products in their offerings, complementing the Linx brand in certain markets.

Turning to Danaher Motion, revenues grew 18.5 percent in the quarter, with core revenues providing growth of 14 percent and acquisitions contributing growth of 4.5 percent and a favorable currency impact contributing 3.5 percent, offset somewhat by the impact of fewer days of 3.5 percent. 2004 full-year revenues increased 20 percent, as revenues from existing businesses grew 13 percent, acquisitions contributed 3.5 percent, and currency gains contributed 3.5 percent.

Danaher Motion continued to deliver broad-based core growth, driven by continued strength from our Electric Mobility, Flat-panel Display, and Otis Elevator initiative, offset by sequential slowing in the semiconductor market.

For the year, Electric Mobility's revenues exceeded $100 million, up more than 35 percent versus the prior year, while Flat-panel revenues were in excess of $30 million, up over 50 percent. 2005 volume expectations for the flat-panel market continue to increase, although at what is likely to be a more modest rate, estimated to be 10 percent higher than 2004.

Our business with Otis remains strong and it was up more than 40 percent last year.

As we enter 2005, the outlook for Motion continues to be healthy, although higher comparisons and a slower semicon market will create headwinds affecting our ability to deliver the low teens core revenue growth generated in 2004.

Turning to our third segment, Tools and Components, revenue there grew 2 percent in the quarter, a result of core revenues growing 7 percent, offset by the impact from the divestiture of Joslyn Manufacturing in November, which negatively impacted revenues 1.5 percent, as well as the impact of fewer days in the quarter, which impacted us an unfavorable 3.5 percent.

For the full year 2004, revenues increased approximately 9 percent to $1.3 billion, as core revenues contributed a 9.5 percent gain, offset by the negative impact of the divestiture.

Operating margins for the quarter were 14.2 percent, an increase of 30 basis points over the prior year, driven by the impact of incremental revenues and benefits from cost reduction programs, primarily in the handtool group and Jacobs Chuck.

Steel prices, while still representing a headwind, were offset somewhat by price increases implemented earlier in the year.

Toward the end of the quarter, we announced the relocation of our handtool manufacturing operations in Springfield, Massachusetts to existing tool group facilities in Arkansas and Texas.

For the quarter, we recorded approximately $5 million of costs related to this move.

An additional $6 million of costs will be incurred in the first half of 2005 as part of this same move.

Operating margins for the full year increased approximately 70 basis points to 15.2 percent.

Handtool revenues grew 6.5 percent in the fourth quarter, as core revenue was up 10 percent, offset by the impact of fewer days.

This performance was led by strength from Matco, our retail business with Sears, as well as our industrial businesses, including the Craftsman industrial initiative.

Handtool revenues for the full year grew 9 percent, due solely to core revenue increases.

Revenue growth at Matco, our high-end mobile distributor brand, again grew at a high single digit rate in the fourth quarter due to the continued strength in same-store franchisee sales, driven in part by low double-digit growth in both toolboxes and mechanics' hand tools as we continued to outperform in this market.

For the full year, Matco was up low double digits.

Shipments to Sears during the key holiday selling season were up mid single digits for the quarter when compared to the fourth quarter of '03.

Sell-through was also up in the mid single digit range, due in large part to additional ad space and incremental promotional activity at Sears.

At Lowe's, our revenue was up mid teens for the quarter, with sell-through for the full year up over 20 percent.

Craftsman industrial revenues grew low double digits during the quarter, driven by strong performances at MSC, Wesco, Fastenall, and AIT.

During December, we were pleased to receive Fastenall's best-in-class award for the hand and pneumatic tools category.

To summarize, we look back on 2004, which was another record year for Danaher, with a lot of pride.

We generated excellent results while continuing to invest in the future by providing funding for both growth and cost-saving opportunities.

As we enter the new year, we continue to see broad-based strength across most of our businesses, as well as in most of our end markets.

However, we remain mindful of the current economic conditions as well as more difficult comparisons as we begin to lap a very strong 2004 performance.

As a result, we anticipate healthy but more moderate core revenue growth in 2005 in the mid single digit range.

Given this outlook, and as we first stated at our December investor conference, we expect our earnings per share in the first quarter to be in the range of 52 to 57 cents, and full-year earnings per share for 2005 to be in the range of $2.62 to $2.72.

Thank you, Larry.

That concludes our formal comments.

Elizabeth, we are now ready for questions.

(OPERATOR INSTRUCTIONS) Steven Tusa of JP Morgan.

Just a question on the dynamics with KaVo.

You said there was an adjustment for an extra month or something.

Could you just explain what's going on there?

And that obviously impacted the SG&A percentage of sales.

Yes, well the KaVo -- I think we did mention last quarter that we were on a one-month lag in reporting KaVo in the early period.

We hoped to catch that up in the fourth quarter and that's what happened.

So essentially, we have the seven months of ownership.

We just have nothing in the second quarter, three months in the third quarter and four months in the fourth quarter.

So we have essentially caught that up.

That is all in the acquisition numbers and has no effect on the core growth, of course, and obviously has a disproportionate weighting in the quarter, both because of the four months and the fact that the operating margins are mid single digit as it is.

So it has a fairly significant effect.

The gross margins are right in line with the segment, but it has a very significant effect on the SG&A because of that effect.

We had about 180 million recorded revenues from KaVo in the fourth quarter.

Okay, so we can kind of do the math on that.

I noticed CapEx was up pretty significantly.

You finally met your targets on an annual basis for CapEx.

What are you investing in there?

Anything specific going on with that -- some sort of a flush at the end of the year or is that a sign of confidence in the internal growth projects you have lined up?

It was a whole mix of things, but certainly there was no rush at year-end.

We don't have that operating mentality at all.

I just think it was a matter of a number of projects, be it the growth investments, some of the facility investments in low-cost regions, certainly some IT projects as well, that have taken root and are now ramping up, combining to deliver the spend that we have there at the end of the year.

We certainly were not holding back and I would not read anything into that number other than we continue to have opportunities to invest in the business.

But in no way is the growth in that number a reflection of a release of funds.

It is just really a business-as-usual approach for us with respect to capital spending.

I think we are still going to be up in 2005.

I suspect we will be up in that 30 percent range, probably around the 150 million.

We will see how that plays out.

Again, we don't consume a lot of capital in our businesses, given both the nature of production and with DBS.

But that's what we currently have in the internal roll-ups for '05.

Lastly, really quickly, other assets in working capital looked like a pretty significant drag in Q4.

Anything specific going on in there?

Well, the net effect for the full year from other assets and liabilities between years was negligible.

Just a lot of it has to do with timing; at year-end is a time where we prepay our subsequent year 401(k) and medical benefits plans, and that funding occurs towards the end of the year.

So that is why the prepaid sequentially goes up, but that is essentially advanced paying obligations for next year so we get a tax cuts for this year.

Great, thanks.

Deane Dray of Goldman Sachs.

Thank you, good morning.

First question relates to your core growth assumptions.

So in the fourth quarter, if you exited -- talk about how you exited.

You said for the quarter it was 8.5 percent.

And then expectations for '05, you said today mid single digits.

I think in December -- not to nail you down on actual numbers -- but I think it was 4 to 6 percent.

So talk about how you exited the fourth quarter and how is that ramping down.

Is this being conservative, is it the tough comparisons, but how do you expect that to ramp down?

Forgive me, I did say mid single digits in the prepared remarks, and we're not coming off the 4 to 6 percent range all.

I think as we exited, and as we said, with only three weeks of experience here in the new year, we are going to hold to that.

Call it conservative if you will, but we do think things are moderating in a number of our markets despite the strength that we saw the fourth quarter.

The quarter was interesting in that -- I think that if you look back month by month by month, October and November were good, but as we indicated in December at the conference, we were seeing that moderation in different places.

December was quite strong.

And the places where we saw the strength, I don't think we in turn in January have seen things really fall off.

So I think things on balance are still healthy.

But again, I think we are going to take a view here that '04 was a very special year.

We will do very well in '05, but we probably won't have as much tailwind this year as we had last year.

I think in particular as we look at some of the businesses where we are seeing some of that moderation, clearly at Gilbarco Veeder-Root we started off last year exceptionally strong, in part because of the some major oil company programs, primarily in Europe.

We don't see that this year, so there is some moderation occurring in that business, let alone the tough comp we have from a year ago.

I think the same dynamic plays out a bit here in Motion, which has clearly been growing at an above-average rate.

I think the combination of what we're seeing in semicon, where I think everyone sees the equipment book-to-bill still south of zero, which is never a positive indicator, and with some of the non-tech programs that we have in Mobility, clearly as we anniversary the programs from a year ago, that causes some moderation of the growth.

I would say in Motion as well we are seeing particular moderation in Europe, more so than anything we're seeing here in the U.S.

And I think in Product ID as well is another business where we're seeing Europe soften a bit.

I know we see the confidence numbers out of Germany this week suggesting an 11-month high.

I think we have a bit of a cautious eye right now relative to some of the core, or what we now call our industrial technology businesses in Europe.

Just a quick business line question.

The wins in Trojan, were these bundled contracts?

They were different cities, but who is doing the buying and how big are the contracts?

And was this the new reactor that had been in development?

I don't have an exact dollar figure for you there.

Those were, to my understanding, not bundled in the largest sense of the scheme, but they were more point products in both Calgary and Winnipeg.

I don't think either of those were the new reactor, but we will follow up and get you a number and a SKU number as well.

Okay, thank you.

Wendy Caplan of Wachovia Securities.

Good morning.

Can you give us some idea as to what working capital would have looked like at year-end without acquisitions?

Wendy, is the question how much of the change in working capital between years is attributable to acquisitions?

Exactly.

Well, there's a couple of dynamics here, the most significant of which is the fact that KaVo was acquired in the middle of the year at kind of a much lower revenue point than they would be at the end of the year.

The fourth quarter is a big year.

So we have a dynamic here of them being a negative contributor to receivables and a positive contributor to inventories because of the timing of that acquisition.

But the working capital would have been slightly negative were it not for the acquisitions if we roll everybody together.

But all that driven by receivables.

Essentially, inventories were flat despite the increase in the business -- in the core business.

And the increase in receivables was slightly larger than the decrease in payables excluding the acquisitions.

Thank you, and I have been wondering -- we've seen lately a trickle, if not an exodus, of Danaher management to other primarily industrial companies, as you are held up to be the example for all.

How do you view that and what are we doing to keep management that we don't want to lose?

I can only think of one person at a senior level that left in 2004, so if that is a trickle -- I will let you pick the word, Wendy.

It is certainly not an exodus of any magnitude.

We know we are a target and we know that all of our good people -- and all of our folks are good -- get lots of calls.

I think what we try to do is make sure this place continues to be a financially and otherwise rewarding place to be.

I think if you look at our success over time with respect to growing the team, retaining the team, we would rate very highly in that regard.

You may know something I don't, but I keep a pretty close eye on that.

Okay.

And finally your cash flow expectation for '05, could you remind us of that?

We think that we will be up, Wendy, in the $1 billion range -- on a free cash basis.

Thank you.

Richard Eastman of Robert W. Baird.

A couple things.

One is, Larry, are there any management changes that go along with the segment reporting changes?

I think the short answer, Rick, is no.

Secondly, what is your early take on the dental equipment market?

We have had KaVo for six months.

The fourth quarter was a little weak.

Is there any tax?

This tax investment credit expired, and there was some thought that that may be moving sales along during the year.

And then lastly, can KaVo get to maybe a 10 percent operating (ph) margin in '05 or was that a little aggressive?

I think, Rick, as we look back here on we've done with Gendex and KaVo, we would do both transactions again in a heartbeat.

I think we are very pleased with the foundation we have with KaVo and the fit between the two businesses.

If you look at the fourth quarter, I don't talk to too many people on our payroll and the channel customers that really point to that tax dynamic.

I went on a couple of sales calls myself in the fourth quarter.

That is really not top of mind for everyone, but there was clearly a very strong December.

So it is just hard to discount totally, but we clearly recognize that is a possibility.

That said, I think as we look at '05 we continue to get excited about what we're able to do with the two businesses in re-establishing their position in the U.S. with distribution, not a historical strength, frankly from either business.

I think we are very excited about what the two businesses are doing from a product perspective, particularly in imaging, digital imaging.

We do have obviously some growth numbers we would prefer to be talking about this morning.

We prefer to be talking about stronger growth numbers in the fourth quarter, but I think we did the right thing in letting some of these promotional activities lapse.

Remember both businesses were being sold at the end of last year.

We also have a historical dynamic in Japan where we are adjusting inventories with our distributor partner there.

Sell-through continues to be good.

We have a good position in Japan, but we thought it was appropriate to make sure that distributor was strong as we are in the space.

So I think we are excited about the platform.

With respect to your question on the operating side, clearly we think we have a significant margin expansion available to us.

The pace will be dictated by a number of things but I would like to think we are in that double-digit range in 2005.

You bet.

Excellent, great.

Thank you.

This is Dan.

One comment to that.

We talked about mid single digit OP.

We did have a dynamic at KaVo where we assumed a pretty significant level of high margin finished goods inventory which per GAAP, we had to step up and as that inventory turned in '04 it lowered the OP.

So there's actually some acquisition accounting there which if you backed out would've suggested better than mid single digit OP.

Great, good insight.

Thank you.

Fred Dassori with CSFB.

Good morning.

You talked a little bit about Europe, but I was wondering if you could maybe expand on what you see in Q1 and in '05 in the context of the macro environment, maybe by geographies.

I think that for us and most of our businesses, Fred, the key country in Europe is Germany.

We're certainly active elsewhere but we go as Germany goes, and I think we are very cautious right now.

Certainly the Euroland (ph) indicators that are out there through the fourth quarter on balance seem to show signs of weakness and I think our own businesses began to see that during the quarter.

Still up, but again that moderation gives us perhaps the conservative outlook that we have relative to this year.

Okay, I was also wondering if you could provide any color on implications of Sears and Kmart.

Well, we I think like the folks out at Hoffman Estates are still awaiting the ultimate or the completion of the transaction.

They really are not involved at this point in too much integration activity given that the transaction is still pending regulatory approval.

So we are letting them go through that process.

We're obviously having a number of discussions and taking our own preparations, but we are optimistic because the combination certainly suggests a better, bigger footprint for distributing the Craftsman brand in this country, and that should be a net positive for us.

So we are optimistic.

All right, thanks very much.

Ajit Pai of Thomas Weisel.

Congratulations on a very solid year.

A couple of quick questions.

The first is over the past two years a significant percentage of your acquisitions have been overseas and clearly a lot of value to shareholders with the decline of the dollar (indiscernible) when the dollar was much stronger.

Now with the change in regulations in allowing you to repatriate some of your earnings abroad with a much lower tax rate, do you think that your future acquisitions or your CapEx in this country might actually increase?

I don't think that we have driven any of our acquisition or capital investment decisions because of the factors you just highlighted.

I think we have had a point of view, which we have expressed I believe publicly on a number of occasions, that of late the valuation environment is more attractive to us in Europe than it is in the U.S.

I think that, coupled with a very intentional effort on our part to broaden what has been a traditional U.S. base of business around the world, has led to the transaction activity which you rightly point out has been a bit weighted of late toward Europe.

But I really would not attribute any causation to interest rate or tax rate dynamics there.

We're really trying to go out there and find good businesses, good business opportunities and bring them into Danaher at smart prices.

Okay.

And second question would be in terms of geography.

I think for fiscal year '03, about 69 percent of your revenues were in the United States.

For '04 for the full year, could you give us that number and also exiting the year what that percentage was?

I think it was approximately 55/45 in '04.

Okay, thank you so much and congratulations again on a great year.

Ann Duignan of Bear Stearns.

A couple of things just for clarification.

On your SG&A, you mentioned it had increased primarily because of an increased spend in R&D and some restructuring.

Can you give us a little bit of insight into what you expect as a run rate for SG&A going forward?

I know you've had somewhat a change in mix.

I would just like to understand what is in there that will be there permanently versus something like restructuring, which is somewhat once-off.

The restructuring spending that was part of the 40 million relative to the size of the SG&A pool there is fairly modest.

I think what you are seeing here, if the business was static and no additional acquisitions, you would see a modest decline in SG&A, but not a dramatic one.

I think we would expect as much improvement in the operating margins going forward, particularly for KaVo to come from the gross margin side of it as much as the SG&A side.

Okay, so very little of the increase this past quarter was caused by restructuring, so the run rate is almost as was reported in Q4 (multiple speakers).

The run rate is exaggerated to some degree in the fourth quarter because of this catch-up on KaVo and it being a heavy quarter for KaVo in any event because of the seasonality.

So it is a little bit skewed by having that four-month pickup from KaVo.

I don't have the mechanics of exactly how much that is and what effect that would be, but the run rate going into next year would be more -- probably closer to, let's say, the average of the back half of the year than in the fourth quarter.

But closer to the average of the back half of '04?

Yes, it would be more indicative, I would say, of run rate, as opposed to the fourth quarter.

Okay.

And just a question.

You mentioned also that December was pretty strong in several of your businesses; actually, you reported nice wins during the quarter.

Does this change your outlook for any of the businesses going into 2005, anything that has gotten a little better than you anticipated or anything that has been a little surprising on the downside, even?

I wouldn't say I have too different an outlook right now, Ann, compared to when you and I were together in December at the conference.

When we see year-end as we did, I think we tend not to extrapolate too much -- at least too quickly.

We had a good December, had a good fourth quarter, a tremendous year, but sometimes those can be spikes that don't necessarily translate into a sustained trend.

So I think we're going to try to have a few more weeks pass here in '05 before we try to recalibrate.

But again, as I indicated earlier, I think we are off to a decent start, though clearly moderating some of the businesses like Gilbarco and Motion and VJ, as I indicated for the reasons mentioned.

Okay, so no significant change through January or as a result of the stronger December in any of your outlooks?

I think that is very fair.

No change from the comments in December really.

Okay, thank you.

At this time, there are further questions in queue.

I will now turn the call back over to Mr. Wilson.

Thank you, Elizabeth.

As a reminder, the replay number for this call is 1-800-642-1687, with conference I.D. code 3254354.

As always, Pat and I will be available for any questions that weren't answered on the call.

Thank you for joining us.

Thank you.

This concludes today's Danaher first-quarter earnings conference call.

You may now all disconnect.