Danaher Corp (DHR) 2005 Q4 法說會逐字稿

Good morning.

My name is Jessica and I will be your conference facilitator.

At this time I would like to welcome everyone to the Danaher Corporation 2005 fourth quarter earnings results conference call. [OPERATOR INSTRUCTIONS] Thank you.

Mr Wilson, you may begin your conference.

Good morning, everyone, and thanks for joining us.

On the call today is Larry Culp, our President and Chief Executive Officer, Dan Comas, our Executive Vice President and Chief Financial Officer, and Pat Allender, our Executive 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 10K 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, cash flow statements.

In addition we have included 2005 quarterly segment data, as well as supplemental income statement data, in the release to facilitate your analysis.

Our website address is danaher.com.

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

This call will be replayed through January 30th 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 3971284.

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

I'd also like to note that in order to help you understand the Company's direction, we will be making some forward-looking statements during this call, including statements regarding events or developments that we believe or anticipate will or may occur in the future.

These forward-looking statements are subject to a number of risks and uncertainties, including those related to litigation and other contingent liabilities, our ability to achieve projected efficiencies, cost reductions, sales growth and earnings, economic conditions in the in-markets we sell into, our ability to expand our business in new geographic markets, commodity costs and surcharges, competition, market demand for our new products, currency exchange rates, changes in the market for acquisitions and divestitures, the integration of acquired businesses, regulatory approval, and the Company's ability to consummate announced acquisitions and general economic conditions.

It's possible that actual results might differ from any forward-looking statements that we might make today.

Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements 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, danaher.com, under the section Investor News.

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

Thanks, Andy, and good morning, everyone.

We are very pleased this morning to report our fourth quarter earnings per share of $0.81, representing another record fourth quarter for Danaher, and a 21% increase over last year's fourth quarter earnings per share of $0.67.

For the full year, earnings per share were $2.79, a 21.5% increase over 2004's EPS of $2.30.

Included in the 2005 and the 2004 results were approximately $0.03 and $0.02 per share respectively of gains related to the sale of real estate and other assets.

Excluding these gains from both years, EPS for the full year increased 21% versus 2004.

Revenues for the quarter increased 14.5% to a record $2.26 billion, as revenues from existing businesses, also described as core revenues, grew 5.5%.

Acquisitions contributed an increase of 11.5% and the currency impact had a negative effect of 2.5% in the quarter.

For the full year 2005, revenues increased 16% to a record $7.98 billion.

Revenues from existing businesses contributed an increase of 4.5%, acquisitions contributed 11.5%, with currency effects for the year basically insignificant.

Our gross margin for the fourth quarter improved 80 basis points to 43%.

Leverage from higher revenues, the impact of ongoing cost reductions in our existing businesses, including our low-cost region, sourcing and production initiatives, as well as higher gross margins in the recently acquired businesses, primarily Leica, contributed to this improvement.

Gross margins for the full year improved 120 basis points to 43.2%, primarily to these same factors.

Selling, general and administrative expenses for the fourth quarter were 26.8% of sales versus 26.4% a year ago.

For the full year SG&A expenses have increased 120 basis points to 27.3%, due to the higher SG&A structures in the recent acquisitions, principally in medical technologies, primarily KaVo and Leica.

Operating profit for the quarter was $368 million, a 16% increase over the fourth quarter of last year.

And for the full year operating profit was $1.28 billion, also a 16% gain.

Operating margins for the fourth quarter were 16.2%, 20 basis points higher than last year's fourth quarter.

Excluding the dilutive effect of lower margins from the 2005 acquisitions, again primarily Leica, margins improved by 95 basis points.

For the year ended December 31, 2005, operating margins were 16%, essentially flat compared to last year, but 40 basis points higher, excluding the effect of the 2005 lower margin acquisitions.

Net interest expense for the fourth quarter was $6.8 million compared with 11.5 million last year.

The reduction was primarily due to lower debt levels, including the redemption of our Euro bond notes in the third quarter, and the 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 27.5% versus 28.5% in the fourth quarter of last year, primarily a reflection of the growing percentage of profitability generated by our non-U.S. operations.

Net income was $262 million, a 20% increase over the fourth quarter of last year.

Net income for the full year was $908 million, an increase of 21.5% over last year.

Operating cash flows were a record $1.2 billion for 2005, up 16.5% from 2004.

Free cash flow, defined as operating cash flow less capital expenditures, was a record $1.08 billion for 2005, an 18% increase over the prior year and our first $1 billion plus year of free cash generation.

Our free cash to net income conversion ratio for the year remained solid at 119%, which marked the 14th year in a row in which our free cash has exceeded our net income, continued evidence, we believe, at the strength of our portfolio and the impact of the Danaher business system.

Capital expenditures for 2005 increased approximately 5% to $121 million.

Our balance sheet continues to remain very strong, with a debt to total capital ratio of 17%, with over $300 million in cash and cash equivalents at year-end.

Turning to the operating segments.

Professional Instrumentation revenues increased 23.5% for the quarter to $1.17 billion.

Revenues from existing businesses contributed 5.5%, acquisitions contributed 21.5%, with currency having a negative impact of 3.5%.

Full year revenues increased 27.5% to $3.78 billion, as revenues from existing businesses grew 5%, acquisitions contributed 23%, with a negative currency impact of about half a percentage point.

Operating margins for the quarter were 17.7%, 80 basis points lower than the prior year.

Core margins increased 110 basis points, with resent acquisitions, primarily Leica, diluting margins by approximately 190 basis points.

For 2005 operating margins were 17.9%, 80 basis points lower than the prior year, due to the dilutive effect of approximately 90 basis points from recent acquisitions.

Environmental revenues for the quarter grew 9.5%, with core revenues up 8.5%, acquisitions contributing 4%, with a negative currency impact of 3%.

Both our water quality and Gilbarco Veeder-Root businesses delivered healthy core growth performances during the quarter, as our retail petroleum business grew sequentially, as we had expected.

For all of 2005 environmental revenues increased 12.5%, with revenues from existing businesses contributing 5%, acquisitions contributing 7.5%, with negligible currency impact.

Water quality group revenues grew at the low teens rate in the fourth quarter, led by Hach/Lange and Trojan.

Hach/Lange core revenue posted solid growth across all major geographies in the quarter, with particular strength in China, which was up more than 20%, and eastern Europe, which grew more than 50%.

Both our lab and process products were up at a low teens rate, as we again gained market share.

We continue to make progress with our Homeland Security initiatives and we're very pleased recently to receive EPA approval for our LDO or luminescent dissolved oxygen product, which significantly expands the potential for this new product.

Hach Ultra Analytics revenue improved in the fourth quarter, growing at a mid-single digit rate, with core growth driven by strength in the Americas, partial offset by continued weakness in our tech end markets.

Trojan's fourth quarter revenue grew by more than 20%, major customer wins and improved profitability, even with a doubling of R&D investment, contributed to an excellent first year under Danaher ownership.

During the quarter we acquired Aquafine Corporation.

Aquafine has approximately $15 million of revenue.

They are a California based leader in ultraviolet based water disinfection equipment for both industrial and commercial applications, providing an excellent complement to Trojan's strong municipal product offering.

Gilbarco Veeder-Root grew core revenues at a mid-single digit rate in the fourth quarter.

Strong dispenser sales in the quarter were augmented by the shift of third quarter orders into fourth quarter shipments, as we mentioned on the last quarterly call.

During the quarter Gilbarco Veeder-Root formerly launched SmartConnect, an innovative diagnostic software offering used to remotely troubleshoot dispensary issues to reduce service calls and increase uptime.

Electronic Test revenues grew 9% in the quarter, with core revenue contributing 1%, acquisitions contributing 9%, with an unfavorable currency impact of 1%.

As we discussed on the third quarter earnings call, the performance in Electronic Tests for the fourth quarter was impacted by a large prior year installation at SBC.

Excluding SBC, Electronic Test core revenues would have been up at a high single digit rate for the quarter.

Full year revenue for Electronic Test increased 16% as revenues from existing businesses contributed 6.5%, acquisitions 8.5% and currency gains of about 1%.

Fluke's low double-digit core revenue growth for the quarter was led by robust activity in their industrial and electrical markets.

Again, from a geographic perspective, China led the way with 20% growth in the quarter, while both our European industrial and electrical sales grew at high single digit rates.

Sales to key distributors, like Westco and Graybar, were up over 15% during the quarter, and Fluke biomed grew its test business at a high single digit rate versus the prior year, driven by success with several key products.

Fluke Networks posted a double-digit revenue decline for the quarter, due to the prior year SBC installation I just mentioned.

Excluding this order, core revenues would have been relatively flat.

Delays in government spending and a push out of expected telecom orders contributed to a weaker performance in the U.S., which was largely offset by growth in Europe.

New products, including the ether-scope and DTX Cable Analyzer, continue to perform very well.

This past Friday we announced the completion of the acquisition of Visual Networks, a $50 million Maryland based firm specializing in network test and application performance management solutions.

Visual will broaden Fluke Networks' product offering as well as provide additional customer access through key relationships with service providers.

We look forward to working with the Visual Networks' team now that they are a part of Danaher.

Moving to medical technology, for the quarter revenues increases 55.5%, core revenues improved 5.5%, acquisitions 56%, with a negative currency effect of about 6%. 2005 revenues for the medical technology platform increased 75.5% versus a year ago.

Core revenues contributed 2.5%, acquisitions added 75%, and a negative currency effect of 2%.

Radiometer, our leader in critical care diagnostics, grew revenues at a high single digit rate, driven by steady performances in all product categories.

Outpacing the market instrument placements, particular the new ABL800, were at an all time high, setting the stage for significant future consumable sales growth.

Sales in North America continued to be very strong, but were somewhat mitigated by softer European demand .

During the fourth quarter we acquired Linda Medical Systems, a $5 million manufacturer of transcutaneous measurement products based in Switzerland, which broadens Radiometer's existing blood gas diagnostics offering.

Turning to our dental business, core revenues increased at a mid-single digit rate.

Imaging orders remained very healthy, with sales up mid-teens for the fourth quarter, driven by the new Gendex 8500 Panoramic Digital X-ray.

Our new minimally evasive product, such as the DIAGNOdent laser pen, also continued to drive growth.

We continue to see progress resulting from the restructuring activities undertaken during the past year, which we believe have strengthened and better positioned our dental business for profitable growth in 2006.

For all of 2005, pro forma dental revenues, including Pelton & Crane indexes, were up at a mid-single digit rate.

Leica Microsystems also turned in a very solid quarter, with pro forma revenues growing in the low teens.

There was broad-based strength across the product portfolio at Leica and, with the exception of Japan, Leica experienced growth in all major geographies.

A particular note this past Saturday, German Chancellor Angela Merkel presented Leica with the prestigious 2005 German Innovation Award.

An award Leica won in its category for their new high-resolution laser scanning confocal microscope.

Moving to our Industrial Technology segment, revenues increased 8.5% for the quarter to $744 million.

Revenues from existing businesses contributed an increase of 6%.

Acquisitions contributed 5% and currency declines were 2.5%.

Full year 2005 revenues increased 11% to $2.91 billion, as revenues from existing businesses contributed 5%, acquisitions 6%, with negligible impact from currency.

Operating margins for the quarter were 16.3%, a 140 basis point improvement versus the same period last year.

For all of 2005, operating margins increased 60 basis points to 15.2%, with Motion a major contributor, improving more than 200 basis points for the year.

Product identification revenues increased 21% during the quarter, with core revenues contributing 10.5%, acquisitions contributing 13%, with a negative currency impact of 2.5%.

Both Videojet and Accu-Sort continued their positive momentum with solid growth in the second half of '05.

Revenues for the full year increased 26%, as revenues from existing businesses contributed 9.5%, acquisitions contributed 16%, and currency gains contributed half a percentage point.

Videojet's solid mid-single digit growth was driven by increased placements of CIJ Laser and Thermal Transfer Overprint equipment in North America and Europe, as our performance clearly showed sequential improvement throughout '05.

Accu-Sort revenues improved at a double-digit rate during the quarter despite very difficult prior year comps.

Growth was driven by bar code scanning products and U.S.

Postal Service revenues.

We have begun installation of our RFID over-the-conveyer high-speed Tracking Tunnel at a Wal-Mart facility, having successfully completed Wal-Mart's rigorous validation demonstration.

Currently Accu-Sort is the only supplier of this RFID type solution to Wal-Mart.

Moving to Motion revenues, we're up slightly in the quarter, with core revenues providing growth up 3%, acquisitions contributing growth of 1.5%, with an unfavorable currency impact of 4%.

For the full year, 2005 revenues increased 2.5%, as revenues from existing businesses grew 0.5%, acquisitions contributed 2.5%, with a currency decline of half a point.

Motion core growth rebounded during the quarter, led by another healthy performance from our electromobility and aerospace and defense offerings.

We also had strong performance from our controls business, with growth there exceeding 15%.

During the quarter we signed a five-year contract with ThyssenKrupp to provide elevator motion control systems.

This opportunity is expected to exceed $100 million over the next five-years with shipments expected to commence later this year.

And finally, moving to Tools and Components, revenue for the quarter grew 1% to $349 million with core revenues adding 4%.

The 2004 divestiture of Joslyn Manufacturing had a negative impact of 3%.

For the full year revenues decreased approximately 1% to $1.29 billion, as core revenues contributed 4% and the 2004 divestiture of Joslyn had a negative impact of 5%.

Operating margins for the quarter were 14.6%, an increase of 40 basis points over the prior year, driven by the impact of incremental revenues and the benefits from cost reduction activities, including the closure of the Springfield, Massachusetts facility.

Operating margins for the full year increased approximately 20 basis points to 15.4%, a result of these same factors.

Mechanics hand tool revenues grew 1% in the fourth quarter.

Matco, our high-end mobile distribution brand again led our performance, offset by declines in our private label, Sears retail business.

Hand tool core revenues for the full year grew 4%.

High single digit revenue growth at Matco in the fourth quarter reflected the continued success in our same-store franchise sales.

Matco, we believe, continues to outperform the industry, posting low double-digit sales growth for all of calendar 2005.

At Lowe's our revenue was up at a mid-teens rate for both the quarter and the full year, while our Sata brand in China grew over 15%, both outstanding performances.

Craftsman industrial revenues grew at a low double-digit rate during the quarter, driven by strong performances, primarily with Fastenal, MSC, Westco and AIT.

With respect to the share buyback program, there's been no change to the update we provided you at our December analysts meeting.

During the fourth quarter we purchased approximately 3.1 million shares at an average price of $51.23.

For the full year we purchased approximately 5 million shares at an average price of $51.47.

Looking back, 2005 represented another record year of sales, profits and cash flow and a marked strengthening of the portfolio, primarily in our medical technologies platform.

We saw strong top-line performances throughout the year from electronic test, water, product ID, and and radiometer, solid margin improvement at Motion and healthy mid-single digit pro forma growth at our new dental business.

Heading into 2006, our outlook remains positive as we continue to see momentum across this strong portfolio.

We're particularly encouraged by the fourth quarter performance and obviously our very strong December.

Given this outlook, we continue to expect our earnings per share in the first quarter to be in the range of $0.61 to $0.66 before taking into consideration the expensing of options and $0.59 to $0.64 when including option expensing.

Full year earnings per share for 2006 are expected to be in the range of $3.13 to $3.23 before the expensing of options, which represents a year on year improvement of 14 to 17%, and $3.02 to $3.12 after option expensing.

Thank you, Larry.

That concludes our formal comments, we're now ready for any questions.

Jessica.

[OPERATOR INSTRUCTIONS] And your first question comes from Bob Cornell.

Yeah, good morning, everybody.

Actually I just clicked off the website so I didn't see if you included in your summary, Larry, on the '06 the organic growth outlook, if it's different from the presentation you had lately.

Bob, we didn't comment on organic growth per se.

There at the end, what we said was that we were maintaining the EPS guidance both for the first quarter and for the full year that we gave in December.

I think with respect to organic growth, again, we are very pleased with the strong finish to the year.

December was exceptional in a number of our businesses.

I think dental clearly finished nicely, a lot of impact from the new products.

Germany, the restructuring there I think is well in hand.

Clearly, the bar code we cleared not only the backlog but saw a little bit of year-end money, which was a positive sign.

Motion good pickup.

Obviously, DTG a bit of a wild card for us given the transition at Sears.

I think all up we are holding to the 4 to 6 we shared in December, but obviously we have got a lot of good things going on for our right now.

I think the medtech platform, in particular, just keeps getting in better shape.

I think the tone is good across the board.

We were at Gilbarco Veeder-Root, for example, last week.

Looks like the start to the year there, as it is in many of our other businesses, is, I would say, encouraging.

But we clearly haven't seen the full benefit from a number of the new products we launched in the second half of last year, the new products we have coming on this year.

So I think we're looking forward to a good year, but at this point, just a few weeks into '06, I don't think we're ready to change materially the guidance we shared back in December.

You guys are getting more and more of these bigger contracts.

You got the New York water quality contract, you announced the big elevator contract.

First of all, are we going to see any impact in '06 from those big contracts?

And are there any of those on the horizon?

And is this the kind of thing that the company is looking to do more of these really big contracts?

Bob, I would say I'm not sure there's necessarily a concerted effort for us to try to go bag a lot of these big game fish.

But as we put in front of our customers a more compelling value proposition, that includes not only great technology but everything else that we're able to do for our customer with EBS, I think you see these sorts of opportunities coming to the surface.

These fish, if you will, going into the box, which is great news for us.

I think as we look at both the Trojan win in New York, clearly a breakthrough, not only for Trojan, but for UV technology broadly.

We don't really expect much impact this year.

I think with Thyssen as well, we would see very modest impact late in the year.

These are big programs, which often means they will start slowly.

So I think when we begin to talk about the impact in terms of our core growth, it's more of an '07 phenomenon than '06.

One final thought.

You talked about exiting '05 with momentum, any reason why we should assume that would dissipate here in the first part of '06.

I certainly don't see any reason why, as we go into the new year here, that we're not going to chug along at a very similar strong rate.

Clearly, as we have flagged before, we see, I think, a tougher comp, particularly in the second half, at product ID, given some of the U.S.P.S. programs this year.

Early in the year we're going to be working against some tough comps in the hand tool business at Sears, because we had a very good first half with them last year before the integration.

But in terms of the other businesses, I think we see strength.

We see continuity and, obviously, we're going to be out there looking to have a very good year.

Okay.

Thanks very much, Larry.

Everybody else.

Thanks, Bob.

Your next question is from Ann Duignan.

Hi, good morning this is Ann Duignan.

Good morning, Ann.

Good morning.

Larry, could you comment a little bit on the tools and components margins.

What your expectation is for margins going into '06 in that business.

And are we seeing a change in mix in that business or what is going on there?

The margins were a little bit lower than we had forecast.

Ann, this is Dan.

We were sequentially down in margin versus Q3.

That's not atypical for us.

As you know we do a lot of our business with Sears in Q4 and that is at a lower margin than, for example, our Matco business.

So there is a little bit of a mix issue in Q4.

But year-over-year we were up 40 basis points in Q4.

I think it's more of a seasonal issue and we do see continued progress.

And we are looking for continued progress in margins in tools in '06.

I think particularly, Ann, with the Springfield, Mass facility out of the manufacturing footprint for a full year and I think just a better operation of the ongoing operations we should see benefit from that.

I would be disappointed if we didn't.

And is that business sensitive at all to any decline in residential construction or if residential -- if housing prices fall and renovation declines, could this business be impacted by either of those events?

Our view is that there are a lot of mechanics' hand tools that are purchased either because someone has bought a new home or their are renovating.

Obviously, we might have more of that type of tie, perhaps in an indirect way, at Lowe's than we do at Sears, given the end-user that we are targeting.

But I think history would suggest that risk for us is rather modest.

Okay.

Thank you.

I'll get back in queue.

Thanks, Ann.

Your next question is from Richard Eastman.

Yes, good morning, Larry.

Good morning, Rick.

A quick question on the Motion piece of the business can you just give us a sense of where the op profit finished the year?

And then also as we look forward into '06, the type of the increased basis point improvement in op margin that you are targeting?

Just to get a sense of the leverage out of that piece.

Rick, this is Dan.

Q4 ended mid-teens, not for the full year, but Q4 was in mid-teens.

I'm not sure we see 200 basis points of improvement, but I think we'll see some-- we're looking at some significant improvement for '06 as well.

And is the emphasize strongly on op profit there or it is kind of balanced between growth and op profit improvement.

Rick, I would say that the heavier weighting is still with margin expansion.

Okay.

But in terms of just splitting 100 basis points between the two, there's probably a little less of the weighting on margin expansion and a little more on top-line growth.

I think as we have wrung a lot of cost out of this business, it has helped us in other ways in the factories, which I really guess is an opportunity to be more aggressive with respect to going after the top-line.

Okay, very good.

Well, thanks, Dan, and nice speaking to you.

We're not done on the margin expansion at Motion, so we don't want anyone to lose sight of that.

Okay, very good.

Nice finish to the year.

Thank you.

Thanks, Rick.

Your next question from is from Robert LaGaipa.

Hi, good morning.

Good morning.

Just a couple questions.

One is maybe you could just comment on, specifically within the medical technology platform the dental business, I understand that over the course of the last few months you have been repositioning the products there.

And you had also been impacted by some of the changes in the health care system in Germany.

I was just curious, on a go-forward basis, where are you going to see a change there over the course of 2006?

Are you seeing any additional changes relative to Germany and with respect to the product repositioning, are you expecting the growth rates there to accelerate as 2006 progresses?

I think clearly as we look at '06 we would expect to see a pick up in dental broadly.

I think it's important to go back to what we said in our prepared remarks.

We saw, on a pro forma basis, basically mid-single digit growth there.

But we know, while we had some great performances at Pelton & Crane and certainly at Dexis, we weren't operating on all cylinders.

I think as we progress here, integrating these businesses, implementing DBS, going to the marketplace telling our story, let alone introducing the new products, which take a little longer to have impact, we haven't realized the full potential here.

I think during the course of '06 what you'll see is certainly margin expansion as that integration moves forward.

I would expect a couple hundred basis points in that regard.

But more importantly, we're going to enhance the competitive position, bringing these products together in a more integrated, more aggressive way.

In terms of repositioning, I'm not really sure what you're maybe speaking to there.

Clearly, with the Dexis product, the intraoral sensor, we have transitioned the distribution model in the United States.

We have an excellent relationship with Henry Schein.

They have been doing a terrific job for us, but that program is just in its infancy, I think we are going to pick up momentum as we go through the year.

Obviously, we have new products, not really repositioning, but a refresh, a rejuvenation, if you will, of the existing product line.

And you saw what happens.

Gendex, our imaging business, clearly a business that had at acquisition not all of the products that we would like to see.

We went out, we brought to market the 8500 in the fourth quarter and just had exceptional response by customers.

So a lot of good things going on here in dental.

We think '06 is going to be a good year for the team.

If I could just follow-up with one additional question.

Obviously, with the first quarter range implying kind of -- you mentioned the $0.59 to $0.64.

Over the course of the remaining three-quarters of the year, obviously that anticipates an acceleration, where do you see the largest sources of that acceleration as the year progresses, if you look at your segments?

I'm not sure I view it so much as an acceleration.

I don't think we're necessarily looking at earnings growth maybe being very different by quarter.

I just think it's very early in the year and I think just starting a little conservative in providing guidance is the right way to go.

Okay, terrific.

Thank you very much.

Thank you.

Your next question is from Deane Dray.

Thank you, good morning.

Good morning, Deane.

Larry and Dan, could you comment on the bidding activity on first technology to the extent that you can.

I specifically would like you to address what are the perceptions, what are the risks that you see in coming in as a topping bidder in these type of instances?

We saw it in like GeoSystems Is there-- do you weigh the risk perception that you might be overpaying and how do you stay disciplined during that process?

Well, Dean, I think for us staying disciplined is easy, because that's really the only way we know how to play the deal game.

And I would argue with anybody that that was exactly the approach that we took throughout the course of that transaction.

Obviously we're limited in what we can say because we do have an offer, obviously one that has been topped by another party.

But given the UK takeover rules, we really can't talk too much to this.

But rest assured that as we went through our due diligence on a company that we have known for a very long time, I think we understood very well what was special, what was unique, where the competitive advantage in that business was and how that would fit with us.

So at no point did we feel that, as we went out and put a price into the market, that we were in any way being undisciplined.

Nor were we in any way doing something that would not create value for Danaher shareholders.

Obviously, there are options or processes or even discussions all the time, few of which play out publicly.

Where our discipline is in effect, where you have a similar dynamic.

From time to time it has to happen publicly.

We will win, as we did last year as well with LYNX, one of the best deals we did in the course of '05.

There will be times with like a GeoSystems where we won't carry the day.

That's just the nature of the game.

But I hope everyone takes from LYNX and from Leica GeoSystems, that when we need to play the game publicly, we will be aggressive and we will be disciplined with the shareholder in mind.

With that said, no one should also lose sight of the fact that in 2005 we had a record number of completed transactions, 16 in total I believe.

We brought in $1 billion of revenue.

And as we look at '06 here, despite what may happen in the UK, we're exceptionally busy and I feel very good about our prospects to put capital to work to strengthening the portfolio and build value for Danaher shareholders.

That's helpful and also interested to see that you made an acquisition in water, the Aquafine transaction.

Can you comment on -- I can see where this has an industrial application on you, via it complements Trojan, but can you comment on what the pipeline in the potential water acquisition looks like and also pricing.

Sure, just on Aquafine, clearly given Trojan's strength in the muni market, we thought that in the industrial segments you see a smaller penetration thus far, but Aquafine clearly a leader there.

We like when companies know each other, good cultural fit, technology, all the rest.

Really that market access is very important for us.

I think that as we look at the water space, there are lots of targets, lots of conversations underway.

Obviously, from time to time, pricing can get a little out of whack, but we clearly are a very strategic buyer.

We bring a lot of synergies to those discussions.

So where we see properties that we think have an important roll to play, we'll go get those.

If others want to bid things up that don't really matter to us, because they want to be in the water business in some form or fashion, that will happen.

We don't worry about that.

But I would submit to you, Deane, that the opportunity list remains healthy in and around Hach and, frankly, to a lesser degree at Trojan.

Good and then last question, can you remind us of your assumptions for '06 on raw material costs and pricing.

I think in a nutshell, we thought we would be-- that net effect would be favorable to us.

That we would have pricing north of any input cost inflation.

In part because I think what we'll do with price, but also, frankly we still are not fully leveraging our corporate spend.

We haven't fully penetrated our activities in Asia and other LCR's.

So we're still taking cost out in excess of the prices we have to pay, the inflated prices we may have to pay in certain commodities.

And obviously the businesses are out here first of the year, in many instances, pushing hard on price where we can get it.

Part of the 4 to 6% for growth, how much of that might be price?

Probably-- sorry Dan?

One, maybe a little more than one.

Yeah.

Great.

Thank you.

Thanks, Dean.

Your next question is from Steve Tusa.

Good morning.

Good morning, Steve.

Good morning, Steve.

On the product ID business, and specifically Videojet, one of your competitors was out saying that there has been some pricing pressure in Asia.

I'm just wondering, you had a good revenue number there.

How did the margin finish the year and, specifically, the Videojet business?

I guess they termed it as a more competitive market in Asia.

I think you'll see that in a lot of businesses, not just product ID, not just in CIJ and lasers.

So I'm not sure if that's a unique phenomenon in this space.

It's one of our highest margin businesses and we're obviously going after growth.

So nothing unusual?

And margins remain very healthy in Q4.

And you didn't see any kind of serious competitive activity there.

There's always serious competitive activity, but our overall margins were very healthy in Q4.

Okay.

And then the organic growth in the first quarter, you kind of bounced around this year by a percent or so the first quarter and then I guess the third quarter would seem to be relatively easier comparisons than the other two.

Should we expect anything from that?

Is there anything unusual, any kind of conclusions to draw from the comparisons as we move through the year?

Or should it be a pretty steady growth within that range of 4 to 6?

Steve, I think with what we know now, I think steady is a good way to describe it.

Again, I would just reiterate the wild card we have right now in hand tools in the first half and the tougher comps we're going to see in the back half in ID.

But again, we're very optimistic that we're going to have a good year on the top-line and the bottom-line.

Lastly, within the operating margins in the two non-tools segments, is there anything unusual?

We don't have the Q this time.

We don't have the detail that we usually have and you called out the real estate gain.

Is there anything unusual other than that in those margin numbers, any kind of charges or anything that you would have called out if the Q was reported today?

You have in previous Qs.

Both Profession Instrumentation and Industrial Technologies, excluding acquisitions, were both up over 100 basis points versus prior year.

So very strong margin performance and while we're restructuring there where things going on, but I don't know if there's anything to call out.

Okay.

Thanks.

Thanks, Steve.

Thanks, Steve.

Your next question is from Chris Kotowicz.

Good morning.

Good morning, Chris.

I guess I wanted to ask a couple of questions on Leica Micro.

Pretty strong sales growth there on a pro forma basis.

You said low teens, right?

Yes.

Was there something specific that drove that and do you think that that's sustainable as you go into '06 or was there some kind of lumpiness in the order patterns, or -- ?

I would encourage you not to project Leica Micro at that rate in a perpetuity, at least not yet.

That is a business given the nature of the way certain customers purchase, we're-- it will be lumpy at times.

But clearly, they had a very good back half, particularly in the fourth quarter.

Okay.

And then you mentioned that dental was mid-single digit over all and that imaging was obviously the strength there.

Specifically about KaVo, anything there that you can add?

Was that still challenged in the quarter as it was in the third quarter?

From a growth standpoint?

I think sequentially we saw a nice improvement at KaVo, both in the U.S. and in Europe.

Okay.

Year-over-year probably down?

No.

No no no.

Q3 was down, rest of the quarters were up.

Okay.

And as far as your restructuring comment, did you have any carryover restructuring that you had mentioned last quarter.

I think you had some at KaVo that was discretionary, did you have any in the fourth quarter that hurt the margin there.

Yes.

Okay.

Fair enough.

Thanks, guys.

Thank you.

Your next question is from Ajit Pai.

Good morning, gentleman, and congratulations on a very solid quarter.

Thank you.

Couple of quick questions on geography.

Could you give us some color as to what percentage of the sales you had this quarter were in the United States, what in Europe, what in Asia, and what the sort of relative growth rates were core and from acquisitions?

Lot of questions there.

The-- in terms of the growth, maybe I'll start there.

Probably-- I'm sure I'll have more detail on the geographic breakdown by geography.

Relative to the rest of the year, probably our strongest improvement was in the U.S.

Asia, which is largely China, we were kind of up mid-teens, which was consistent where it had been kind of the other quarters.

I think Europe and U.S., which had been more kind of up low single digits.

Europe was up low single digits and the U.S. was stronger than that.

And this is all organic?

Yes.

Okay.

And the U.S. is probably -- it's 50%.

Europe probably kind of 30 to 35%.

Asia, led by China, 10% and the rest of the world 5%.

And what would the tax rate you would want us to use for 2006?

What would it be?

We talked about in December was 26.5%.

Okay.

So there's no change to that based on this geographic mix right now?

That hasn't changed much since December, no.

Right.

And in terms of your cash assets that you have on your balance sheet right now, what percentage are in the U.S. and what percentage outside?

Cash is probably roughly 50/50.

Okay.

Thank you so much and congratulations again on a great year.

Thank you.

Thank, Ajit. you.

Your last question is a follow-up from Bob Cornell.

Yeah, some of the people reported this quarter have talked about difficulty in the tools business.

It seems like your tools business is reasonably good.

Any thought about some of the big box guys cutting back in inventory and creating headwinds here in '06.

We really only deal with two of those guys, Bob.

Obviously with Sears and K-Mart.

That's it's own dynamic and clearly they have put an emphasis on inventories of late.

So we've been negatively impacted by that.

Lowes up, what, 15% during the course of the year in this category, still with a very modest share position and enjoying very good success.

They may, if their overall business is slowing or they anticipate such and want to take an inventory, we might see that.

But I think we have a real opportunity, given the growth, to avoid what may happen with the rest of the store given, I suspect, we are a real outlier with that sort of organic growth rate.

Okay, good.

Thanks.

Thank you, Bob.

There are no further questions.

Sir, do you have any closing remarks?

Yes, as always if you have any additional questions for Dan or I, please feel free to give us a call.

And for those that arrived late, the replay number is 800-642-1687 with a confirmation code of 3971284.

And again, thank you for joining us on the call today.

Bye.

This concludes today's conference call.

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