Danaher Corp (DHR) 2007 Q2 法說會逐字稿

Good morning, my name is Matt [Hepburn] and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Danaher Corporation second-quarter 2007 earnings results conference call.

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

After the speakers' remarks, there will be a question-and-answer period.

(OPERATOR INSTRUCTIONS).

As a reminder, today's call is being recorded.

Now, I'd like to turn the call over to Mr.

Andy Wilson, Vice President of Investor Relations.

Mr.

Wilson, please go ahead.

Good morning, everyone, and thanks for joining us.

On the call today are Larry Culp, our President and Chief Executive Officer, and Dan Comas, our Executive Vice President and Chief Financial Officer.

I'd like to point out that our earnings release and 10-Q are available on our Web site, under the heading "Investor Events." Access to our webcast presentation supplementing today's call can be found under the same heading, "Investor Events."

In addition, we've included, in the webcast, presentation materials, supplemental documentation detailing the impact of acquisitions and currency translation on company and segment revenues, as well as additional information identifying factors impacting Company and segment margins for the relative period.

The call will be replayed through July 23 and the audio portion will be archived on our Web site later today and will remain archived until our next quarterly call.

The replay number is 888-203-1112 and the confirmation code is 2914902.

I will repeat this information at the end of the call for 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 the 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 set forth in our SEC filings.

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

These forward-looking statements speak only as of the date that they are made, and we do not intend update any forward-looking statements.

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 in the Investor section of our Web site, www.Danaher.com, under the heading "Earnings."

One final note -- earlier this month, we announced the signing of a definitive agreement to sell our Power business to Thomas & Betts.

This transaction is subject to regulatory approval and other customary closing conditions and is expected to close early in the third quarter of 2007.

We are currently evaluating the accounting treatment for this transaction.

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

Andy, thanks.

Good morning, everyone.

We are very pleased to report this month that our second-quarter earnings per share were $0.96.

Included in our 2007 second-quarter earnings per share is approximately $0.02 per share resulting from the April 2007 collection of indemnification proceeds related to a pre-existing litigation matter at Accu-Sort.

(inaudible) this item, earnings per share increased 17.5% as compared to last year's second-quarter earnings per share of $0.80, which excludes the prior-year impact of a gain of $0.03 per share related to the sale of interest in the shares of First Technology and the impact from certain tax-reserve reductions of approximately $0.15.

Revenues for the quarter increased 13.5% to 2.7 billion, as revenue from existing businesses, also described as core revenues, grew 4.5%.

As we communicated last quarter, the completion of several large U.S.

postal projects, primarily in the first half of last year, within our product (inaudible) business, as well as the impact of emission regulations on our Jacobs Vehicle Systems business, negatively impacted second-quarter core revenue by approximately 150 basis points.

Year-to-date, revenues were up 16.5% to $5.2 billion, as revenues from existing businesses grew 4%.

Our gross margin in the second quarter was 45.5%, a 160 basis point increase when compared to the same period last year, as gross margins were positively impacted by leverage from higher revenues, ongoing cost savings, and from the higher gross margins in our recent acquisitions, primarily Sybron and Vision.

Selling, general and administrative expenses for the quarter were 29.3% of sales, an increase of 90 basis points versus last year.

This increase was driven by higher SG&A (inaudible) in our recent acquisitions, primarily again Sybron and Vision, and increased R&D and sales and marketing spending to fund future growth.

Year-to-date, SG&A expenses were 29.8%, an increase of 120 basis points over the first half of last year.

Operating profit was a record $448 million for the quarter, a 17.5% increase over last year.

For the first half, operating profit was $822 million, a 21% increase over 2006.

Operating margins for the quarter were 16.8%, a 60 basis point improvement over last year, with core operating margins up 90 basis points, a result of ongoing cost reductions as well as leverage from higher core revenues.

We were particularly pleased with the margin improvement in our Medtech and industrial technology segments.

Year-to-date, operating margins were 15.7%, an increase of 60 basis points compared to last year, with core margins up approximately 75 basis points.

Net interest expense for the second quarter was $23 million compared with $13 million for the second quarter of last year.

The increase in interest expense is primarily due to higher debt levels related to the CP borrowings utilized to fund the Sybron and Vision acquisitions.

Our effective income tax rate for the second quarter was 26.7%, compared to 14.5% Last year's second-quarter tax rate was positively impacted by the reduction of certain tax reserves which resulted from the favorable resolution of various domestic and international examinations related to the prior years and the realization of certain foreign tax credits.

For the balance of 2007, we anticipate an effective tax rate of approximately 27%.

Net income was 311 million, a 1% decrease over the prior-year second quarter, due to the aforementioned First Technology gain and reduction of prior-year tax reserves, which positively impacted 2006 net earnings by approximately $58 million.

For the first half of 2007, net income was a record 566 million, an increase of 7% over last year's first half.

Excluding the impact of the current-year gain related to the collection of indemnification proceeds, as well as last year's First Technology gain and reduction of prior-year tax reserves, net income increased 18% and 19% for the second quarter and first half, respectively.

Operating cash flow for the first six months of 2007 was 692 million, 6% higher than last year.

Gross capital expenditures year-to-date increased to $70 million, representing a 19% increase over the first half of last year.

Our current full-year estimate remains at approximately $175 million to $200 million.

Second-quarter free cash flow, defined as operating cash flow less capital expenditures, increased 17% over the same period last year.

Free cash flow for the first half was $621 million, representing a 5% increase as compared to 2006, despite approximately $140 million in additional income tax payments in the first half of this year.

Our free cash to net income conversion ratio for the first six months of 2007 was 110%.

For the year, we remain solidly on track to deliver free cash in excess of net income for what would be our 16th year in a row.

Our balance sheet remains solid with a debt-to-total capital ratio of 23% and $175 million in cash and cash equivalents at quarter's end.

Let me turn now to the operating performance in the quarter and start with our Professional Instrumentation segment, where revenues were up 14.5% for the quarter to $820 million.

Revenues from existing businesses grew 8.5%.

For the first half of 2007, revenues were up 13% to $1.6 billion.

Revenues from existing businesses increased 7%.

Operating margins for the quarter were 23.2%, down 60 basis points versus a very strong prior-year performance.

The prior-year gain from the collection of previously written-off receivables negatively impacted margin comparisons by 60 basis points, while the dilutive effect of acquisitions and the impact of prior-year real estate gains impacted margins by an additional 40 basis points.

Absent these items, operating margins improved approximately 40 basis points in the quarter.

Year-to-date, operating margins decreased 20 basis points to 21.4%, when compared to 2006, due to the same factors.

Absent those items, operating margins for the first half also improved approximately 40 basis points.

Environmental revenues for the quarter were strong, up 11.5% with core revenues growing 8.5%.

For the first half, sales are up 10% with core revenues growing 6.5%.

[Water] quality core revenues grew at double-digit rates in the second quarter, a result of broad-based strength in both our lab and process products lines.

Geographically, Asia was up over 20%, Europe was up double digits, and North America was up at a high single-digit rate.

During the quarter, we acquired [Zulich], a $10 million Switzerland-based company that provides measurement instrumentation used by the beverage industry for drinking and wastewater applications.

Sales in our water-treatment business were up more than 20% in the quarter, led by a strong performance in the municipal wastewater market here in the U.S.

During the quarter, Trojan won three new significant wastewater purification tenders in Australia, which represent more than $10 million of future revenue that are scheduled for delivery over the next year.

Subsequent to the second quarter, we completed our acquisition of ChemTreat.

ChemTreat is a $200 million leading provider of water treatment solutions for commercial and industrial applications, which nicely complements our existing water-treatment offering and brings with it an attractive consumables and service business mix.

We are obviously very pleased to have ChemTreat and the ChemTreat team with Danaher today.

Moving over to Gilbarco/Veeder-Root, core revenues grew at a mid single digit rate in the quarter, driven by healthy dispenser sales in the U.S.

and Mexico, as well as demand for our recently launched air-quality products.

Sales of our Veeder-Root monitoring systems were up double digits, reflecting strong international demand.

Moving over to electronic test, revenues grew 20% in the quarter with core revenues up 10%.

Sales increased 19% in the first half with core revenues up 9% over the same period.

New product introductions in thermography, power quality, and precision measurement contributed to the high single-digit growth rate that we saw at Fluke.

Geographically, Europe and Asia were particularly robust, both up at mid-teens level during the quarter.

During the second quarter, Fluke introduced their new process plant meter, a breakthrough tool which provides preventative maintenance technicians the ability to measure and calibrate electrical current without having to disconnect or powerdown the equipment they're working on, thereby driving productivity and uptime.

Shipments of this new plant meter have significantly exceeded initial expectations and have been a key driver to our mid-teens -- excuse me, high-teens growth during the quarter.

In June, we acquired Ircon Group, a $15 million designer and manufacturer of infrared temperature measurement and fixed thermal imaging products utilized for quality-assurance applications.

The acquisition of Ircon further enhances Fluke's leading position in both temperature and thermal imaging instrumentation.

Fluke Networks' core revenue increased at a mid-teens rate, driven by copper and fibre certification products and by strength in both Europe and in North America.

During the quarter, Fluke Networks received a multi-million dollar order from a major U.S.

telecommunications service provider to facilitate their deployment of voice, video and data services.

Also during the quarter, Fluke Networks received the AT&T Key Supplier recognition award.

Moving to Medtech, revenues for the quarter were up 38% to $707 million.

Core revenues up 7% in the quarter contributed to the growth.

Year-to-date, sales were up 54% to approximately 1.4 million with core revenues growing 7.5%.

Medtech operating margins for the quarter were 11.1%, 260 basis points higher than the same period last year.

This performance was driven by core margin improvement of 95 basis points, as well as the year-over-year impact from inventory charges associated with the acquisition of Sybron, which accounted for approximately 190 basis points of the increase.

Op margins for the first half increased 340 basis points to 11.8% as compared to the first half of last year, a result of the same items as well as the higher margins of recently acquired businesses, particularly Sybron.

Year-to-date, core margins improved 85 basis points.

Core revenues in our dental business grew at a low single digit rate for the quarter.

Our consumables business, principally Sybron, grew at a mid single digit rate, led by demand in both Europe and Asia, while the U.S.

benefited from double-digit growth in our (inaudible) and orthodontics product line, which I know proudly wear myself.

Dental equipment revenues were essentially flat in the quarter as a strong U.S.

performance in imaging and treatment units was offset by a softer European market.

Asia revenues declined in the quarter due to a tough year-over-year comparison, primarily the result of a large Korean program that shipped in the prior year and did not reoccur.

Radiometer core revenues grew at a high single digit rate in the second quarter, driven by double-digit instrument placement growth, primarily in our high-end ABL 800 line.

These instrument places, as many of you know, help generate additional high-margin consumables sales in future years.

Leica Microsystem's core revenues grew at a mid-teens rate in the quarter, driven by demand for both our microscopy and pathology diagnostic products.

Increased research spending in North America, in addition to increased sales resources in Europe, were the key contributors to this exceptional midteens core growth performance in the quarter and on a year-to-date basis.

Last month, we introduced the SCM 1000, the first in vivo imaging system enabling researchers to view microscopic images of cells and tissue within small living animals, utilizing fiber optics.

This is a breakthrough technology which provides access to virtually any space in the living animal, generating high-speed recordings of cellular and vascular events critical to drug-discovery research.

We also recently announced the establishment of Leica Biosystems, the combination of our vision Biosystems and Leica pathology diagnostics businesses.

Sales force integration activities have been very successful to date with cross-selling synergies driving record sales of our [Talores] branded tissue processors during the quarter.

Revenue growth compared to prior-year periods we envision with a stand-alone company continues to be robust, up over 20% in the quarter.

Moving to industrial technologies, revenues increased 4% for the quarter to $831 million.

Revenues from existing businesses were up 1.5%.

For the first half, revenues grew 5.5% to approximately $1.6 billion.

Revenues from existing businesses grew 1.5%.

Operating margins for the quarter were 18.4%, a 320 basis point improvement versus the same period last year.

Core margins improved 135 basis points, while the gain arising from the collection of indemnification proceeds related to the Accu-Sort litigation contributed 155 basis points.

Year-to-date, operating margins increased over 210 basis points to 17% as core margins improved by 110 basis points.

(inaudible) identification revenues decreased 0.5% during the quarter with core revenues contributing 3.5% of the decline.

Sales for the non-U.S.

Postal Service marketing business grew at a high single-digit rate, reflecting very healthy demand for equipment across all major geographies.

As we've previously discussed, core revenues for the first half were negatively impacted by several large (technical difficulty) programs in the first half of '06, which did not reoccur this year.

Sales were flat for the first half with core revenues decreasing 4.5%.

Videojet core revenues grew at a high single-digit rate during the quarter.

Continued strength in equipment sales, including laser and CIJ offerings, as well as high single digit growth in consumables, were the primary contributors to this performance.

During the quarter, Videojet launched a new thermal transfer overprinter, or TTO.

The new 6210 provided digital solution for [plotting] variable data, including lot and date codes on flexible food packaging such as foil bags for pretzels or potato chips.

The 6210 improves print quality and increases uptime and is aimed at the emerging markets such as China, India and Brazil.

Moving over to Motion, revenues were flat in the quarter with core revenues declining 2.5%.

In the first half, sales are up 2.5% with core revenues declining 0.5%.

The strength in our elevator, electric vehicle and Aerospace and defense initiatives, as well as demand for our custom motors business, was offset by weaker tech markets.

Revenue declines in these tech markets negatively impacted organic growth by more than 500 basis points in the quarter.

We continue to make progress with our cost-reduction and pricing initiatives in Motion as operating margins improve compared to the same period a year ago, despite the decline in revenues.

Turning to tools and components, tool revenue was 314 million for the quarter with core revenues declining 2%.

For the first half, revenues were 635 million with core revenues decreasing 1.5%.

Operating margins for the quarter were 13.9%, a decrease of 80 basis points over the prior year, primarily due to lower production levels related to the impact of emission regulations on our Jacobs Vehicle Systems businesses, as well as increased material and production costs in our U.S.

operations.

Previously implemented cost actions have mitigated margin declines despite lower revenues in the quarter.

Year-to-date, operating margins decreased approximately 110 basis points to 12.5% compared to 2006.

Margins were negatively impacted in the quarter, primarily due to these same factors.

Mechanics hand tools revenues decreased 0.5% during the quarter, and for the first half sales, are up 1%, all of which is core revenue growth.

Double-digit growth at Lowe's with our Craftsman industrial initiative and in our Asia business partially offset a double-digit revenue decline at Sears in the quarter.

The revenue decline at Sears Holdings was primarily due to their inventory reduction efforts and relatively flat sell-through.

(inaudible) revenues increased at a low single-digit rate.

The loss of (inaudible) new toolbox product line earlier in the year generated sequential sales momentum through the second quarter with June revenues in toolboxes up at a low double-digit rate.

As Andy Wilson mentioned at the beginning of our call, we announced the signing of a definitive agreement to sell our power-quality business to Thomas & Betts.

Upon closing, the purchase price is expected to result in an estimated gain of $150 million or approximately $0.46 per share.

Finally, during the second quarter, we repurchased approximately 1.6 million shares at an average price of $71.50 for a total spend about $117 million.

We are pleased with our performance through the first half of the year.

The majority of the difficult first-half comparisons are now behind us.

As we go forward to the remainder of 2007, we remain confident that we will deliver on our growth and profitability expectations for the year, and we continue to see strength across the majority of the portfolio.

We expect our earnings per share in the third quarter to be in the range of $0.92 to $0.97.

We are increasing our full-year earnings per share guidance from $3.70 to $3.80 to a new range of $3.74 to $3.82, up 16% to 18% versus last year.

It's important to note that both of these ranges exclude the second-quarter gain related to the previously mentioned indemnification proceeds, as well as the estimated gain related to our sale of Power Quality.

However, it does include approximately $0.01 per share of dilution in each of the third and fourth quarters related to the divestiture of Power Quality.

Thank you, Larry.

That concludes our formal comments.

Matt, we are now ready for questions.

Thank you.

(OPERATOR INSTRUCTIONS).

Bob Cornell, Lehman Brothers.

Yes, you know the quarter shows that, the more disclosure you make, the more questions you get, right?

That's the downside.

There is a correlation, Bob.

Yes.

You know, I guess my first question is how about the drag in Motion from tech?

I mean, you have the 500 basis points.

What's that going to look like in the third quarter and the fourth quarter.

When do we anniversary those issues?

Well, we're looking at the second half, Bob and frankly, at this point, I think taking a fairly conservative posture.

You know, we had anticipated that we would see sequential improvement in tech.

I think, right now, we're not expecting to see particular strengthening in those various markets, those end markets in the third quarter and, frankly, not hoping for anything miraculous to occur in the fourth quarter.

So I think, right now, we already thinking that rebound, at least from a planning perspective, is more of an '08 phenomenon than a second half '07 story.

Yes, you didn't reiterate your growth guidance for the year.

Is there a comment there in the context of that first comment in the aggregate quarter result?

Sure, Bob, I didn't mean to omit that.

I think that, as we said in December and have said all along this year, we think we will do 5+%.

I think the math, given what we've done in the first half, particularly on the back of the guidance raise here this morning, suggests we are looking at a back half at 6+%.

Given where we are today with the portfolio, I think with the economic conditions being as strong as they are, let alone what we are seeing from our I2E and DBS initiatives, we feel very good about the second half, both topline and bottom-line.

That's with, obviously, the dilution we mentioned coming out of the Power Quality sale.

Yes, I guess my final question is, with the third-quarter guidance and the full-year guidance, it looks like you got a little bit of a disproportional split between the third quarter and fourth quarter.

Is that the right way to think about this?

Maybe what are the reasons for that?

Well, if you look at the old high-end of $3.80 and you take $0.02 out of that for the dilution from Power in the second half, you're looking at going from $3.78 on the high end to $3.82.

It's probably looking at $0.01 increase coming out of Q2, $0.01 coming out of Q3, and probably $0.02 coming out of Q4.

So you are right.

A little bit of what we're seeing right now is a little more upside here in Q4.

A little more upside you said, Dan?

Yes, well I mean, kind of the net $0.04 increase, about $0.02 of that coming in the fourth quarter, though that, if you look at the math, would be kind of a similar growth rate in earnings to what we've had all along.

I guess one final comment from me is that, in my model anyway -- and maybe it's just me -- the Medtech earnings second quarter over first quarter look little unusual.

You would expect those to be sequentially higher.

I mean, is there a thought there?

Are we looking at a new seasonal pattern?

I think that Q2 is a little seasonally weaker in that sector.

I think the margins were hurt a little bit by the fact that dental equipment was flat, topline, in the second quarter.

So as we talked about, the core margin improvement in Q2 in Medtech was actually a little more than it was in Q1.

But I think it's in seasonal patterns.

You should see a pretty significant increase sequentially, Q2 to Q3, here in Medtech, and then another increase from Q3 to Q4.

Okay, thanks very much, guys.

Bob, I would just add to that.

We certainly saw in dental equipment during the quarter the opportunity to step-up some of our go-to-market investments, particularly in the developing markets.

We also saw an increase in some of our growth (inaudible) through spending around three particular new product initiatives, which obviously have out-year potential, which created some of that dynamic that you're pointing at as well.

I would love to see it.

Thank you very much.

Deane Dray, Goldman Sachs.

Thank you.

Good morning.

Two questions -- the first is could you comment broadly on the M&A pipeline, pricing, and what expectations for transactions out the next several quarters?

Then the second question I'd like to come back to is some specifics on the ChemTreat, so talk about M&A first, please.

Sure, Deane, good morning.

Let me take that.

I think the M&A environment that we see today continues to be very positive.

You've heard us say that we couldn't be busier, given the review Dan and I had with the team just yesterday.

I think that description is still very much the order of the day.

I think you should expect us to continue to be active acquirers here in the second half of '07.

Obviously, we're going to continue to target transactions around our four platforms that have seen the bulk of the investment and the growth.

Obviously, Medtech, Environmental, certainly Electronic test and product (inaudible) all have very active deal pipelines working right now.

Frankly, there's some interesting situations that we're looking at around some of our stronger niche businesses that might be good additions for us later on here in the year.

It's interesting that one of your comments that you're not making is some of the competition with private equity or pricing.

How about those two factors?

Well, I think we've had the view for some time that obviously there is a lot of private equity money out there with some smart people looking to put it to work.

They tend, I think, on balance, to focus on properties that aren't necessarily high on our list.

When we take the long view -- because we're building businesses and we're not buying to sell -- when we look at our synergies and the other things that we would bring to a transaction, we tend to see, frankly, other strategics as really the relevant competitive set, much more so than private equity.

Not that they won't be there, but we find they, more often than not, are going to set a floor in a process as opposed to be a finalist with the company like Danaher, particularly around properties that we covet.

Good.

This is a good segue into a question on ChemTreat.

One of the obvious benefits here is you're broadening out your offerings in water, but you're also noticeably moving down the technology scale away from water test and UV water treatment.

So is this more a reflection of your interest in broadening out the offering, or is it very expensive at the high-end scale between filtration, ultrafiltration and so forth?

Deane, I think you should look at ChemTreat as a classic Danaher water-quality transaction.

I think we've thought for over a decade -- and remember, we got started to in water back in the mid-90s -- that there isn't a single water market but the market is made up of a number of segments and niches, some of which we think are highly attractive, others not so much.

What we've done with Hach/Lange and we've done with Trojan is target the segments where we see good growth and good margin potential.

I think, with ChemTreat, what you see us do is really building out a portfolio in water treatment, a business here that has been a very high grower with very healthy operating margins.

We see that runway, both domestically and internationally, very much intact.

Now, obviously, as a related business, they will be able to do some things with Trojan which I think will help both businesses.

The same will apply to Hach/Lange, particularly outside of the U.S.

But you shouldn't look at ChemTreat as anything other than a continuation of Danaher targeting the attractive segments in the water space.

Great.

Just to clarify your comment on ChemTreat, where you mentioned the consumables, this is much more than a chemical business.

Isn't it more of a solutions business?

Very much so.

At the end of the day, what we really are helping our customers, primarily in their boiler and cooler operations with, is solve the operational challenges that water in the system can create, whether we're talking about bacteria or scaling or corrosion, those sorts of things.

We think the due diligence -- and certainly their own results have proved this out -- that the ChemTreat team does a superior job in providing those solutions to their customers.

Nicole Parent, Credit Suisse.

It's actually Andy on behalf of Nicole.

I was just wondering if you could comment on what you're seeing in the global growth environment, and how you see that going forward.

I think we look around the globe, Andy, and see our markets as particularly strong.

Certainly, as we look to Europe, we look throughout Asia-Pac, Latin America, we just look at those spaces, particularly in our larger, more global platforms, as target-rich environments, both for organic growth and, frankly, for M&A.

We have no complaints about the macroenvironment right now.

John Inch, Merrill Lynch.

Thank you.

Good morning.

Just to start off, I think someone may have been out there suggesting 5% organic growth this quarter was an important threshold.

You know, given the tough comps in Motion, I thought the 4.5 you did was very consistent, if not better than the way you had laid out expectations.

So my first question is am I missing something or were you actually thinking you might be able to hit 5% this quarter?

I think what we were flagging all along, John, was that we would do sequentially better than we did in the first quarter.

We think we've delivered on that.

Larry, the sale or proposed sale of Power Quality, I mean you guys haven't divested sort of on-scale for quite awhile.

Does this represent some kind of strategic shift in the way you're sort of thinking about portfolio management?

I will tell you where I'm going with this.

Specifically, I'm thinking of Motion and really how that business fits the long-term kind of company that you're trying to build.

John, I think, if you look at the quarter, you're looking at the Power Quality divestiture.

I think you should look at that in concert with the opportunistic buyback, in concert with the business we were just talking about with Deane coming in, ChemTreat.

It's really great examples of how we've always approached and always will approach capital allocation in a very strategic, very disciplined way.

So we looked at Power Quality, as we've discussed, a business that could have been larger with Danaher if a couple of transactions over time had occurred.

They didn't.

This is a business that was more valuable to other strategics than ourselves, and obviously at this point in the cycle, a timely time to see those businesses off.

By the same token, we were able to take advantage of a low stock price during the quarter, during a very limited window for us, and put capital to work in the buyback, however modest, but obviously looking to continue to build, both organically and inorganically.

You see that with ChemTreat.

So I'd like to think that what you have in the second quarter are a number of examples of Danaher doing what it has always done, running the plays that have worked for us, that have created value for shareholders over a long period of time.

That's, frankly, the playbook we're going to run in the second half of '07 and the one we're going to use going forward in '08 and beyond.

Will there be other divestitures?

You can never rule that out.

I think we've said, in trying to flag or to foreshadow what would happen with Power Quality, that this would be a year in which you might see us prune at a little more of active rate.

Obviously, you see the transaction on the table.

Is there more pruning to come?

I wouldn't rule it out.

Okay, but the timing of Power Quality in the second quarter -- was that -- I mean maybe Dan can answer this.

Is it just because that's the way the strap plan sort of ultimately culminated in the decision, or was there something that you started the year, Larry, and you said we're just going to get a lot more aggressive in terms of trying to prune the portfolio, and this is sort of what fell out of that analysis?

I think we are very sensitive to when other -- when other companies talk to us about their interests (multiple speakers) some of our businesses.

I think, given the environment, we felt it was a very opportune time to sell the business.

There wasn't a specific decision made a year ago.

We're trying to add value and try to recognize when there are strategic buyers that really come forward with a great deal of interest.

No, that's fair.

One more quick one -- so Roche is proposing to acquire Ventana.

It looks like it would represent a substantial premium to what you guys actually paid for Vision.

So Larry, does this dynamic perhaps open some new possible M&A doors for you in terms of -- I'm thinking of sort of new possibilities in the market, given the market's tolerance for what appears to be higher multiples for these types of properties, versus sort of what Danaher has traditionally paid for some of its businesses, particularly as you build out your medical platform over time?

Well, I think, again, we are trying to stay smart, state disciplined.

Obviously, the price being contemplated for that transaction, putting multiples aside is probably petty cash at Roche.

It would be a significant situation, much more significant for us.

But John, I was in San Diego earlier this week at the Clinical Chemistry show, obviously a market undergoing great, great change even with the aborted GE/Abbott transaction, lots of companies there with new flagship brands on the boost.

I think our strategy really, in diagnostics, will continue to be a focused one.

You see what we've done in acute-care with radiometer.

Obviously, we focused on the tissue-base, the histology, pathology laboratory with Leica in Vision, and obviously with the price is being talked about for Ventana, our pricing on vision looks very attractive today.

I think, as I talk to customers (inaudible) show doctors are very demanding, and our focused strategy aimed at trying to meet their needs around accuracy or reliability with the instrumentation, workflow solutions, let alone doctor and nurse safety, is a strategy that's going to work very well.

We had a couple of new products that we were unveiling, some publicly, some quietly, particularly at Radiometer, which seemed to generate a lot interest, at least in the showings where I was.

I think what you'll see us do is continue to grow those businesses inorganically and complement that with smart acquisitions, not deviating wildly from our financial discipline.

Thank you.

Jeff Sprague, Citi.

Good morning.

Just a couple of things -- first, Larry, you noted the strength in the community water business.

Is there some change and just kind of disbursement of funds or something going on?

That market has been kind of fits and starts lately.

Yes, I think that is a good characterization, Jeff.

I think we've had a number of projects here of late that have finally begun to be installed.

I think that's what you're seeing -- is a pipeline that has been building, as you say in fits and starts, finally coming to reality.

We're going to have a very good year at Trojan, domestically in particular.

I think what was encouraging is we were pretty confident, based on our wins last year, that the top line at Trojan would be real strong this year, but we were worried about the order book kind of going into '08-'09; that's been very good as well.

So not only do I think we are well-positioned in topline this year, but going into '08 and '09 as well.

Then one Medtech, Dan, just to understand what you were saying to Bob Cornell's question, that acceleration you were talking about -- is that a margin comment or was that a topline comment?

It was primarily a margin comment.

You know, the segment grew high single digits, both in the first and second quarter.

We think that sort of growth rate will continue.

My guess is it will -- Leica won't sustain in the mid teens but will continue to grow quite nicely while the dental equipment, which was, as you mentioned, was flatter in the second quarter, will accelerate -- so kind of net/net kind of keep us in those high single digit growth rates but with an improvement in margins.

Then I'm just trying to understand what was going on in dental, because obviously the 7% growth is not shabby but it's a deceleration from Q1 against what looks like an easier comp.

I think Sybron actually rolled in, at least for a month, into your organic.

Is there something with reimbursements or some other dynamic that's going on in Dental?

I think Larry mentioned the Korea thing.

Was that really big enough to matter substantially?

Jeff, yes, I think, if you break it down from a geographic perspective, the U.S.

was strong, particularly in imaging, where we were up over 20%.

Europe was softer, I think, than anybody expected on the equipment side, quite honestly.

We had the big IDS show in March.

We tend to see a good tale coming out of that show.

It looks like Europe is really going to be more of a second-half story.

We have seen, I think, a very encouraging order book here the last four or five weeks, which bodes well for the second half.

Asia, particularly Korea, given it was a large basically one-time program over there, did create a bit of a tougher comp in that regard.

So you roll that all up, not the best quarter dental equipment will ever put up, but I think we look at those geographic dynamics and again feel better about the second half and have already begun to see the start of some of that acceleration sequentially.

Then just one last one -- Dan, you had this big lump of cash taxes in H1.

Is that behind you?

Was there anything unusual?

Is that just kind of timing or was it (multiple speakers)?

It is timing.

You know, as you know, it's quite unusual that our cash taxes equal our provision, as it was in the first half, and that is an anomaly.

You know, we have flagged that our cash tax rate would increase over time, but it's not going to equal our provision this year.

So you'll see relatively lower tax payments here in the second half.

Ann Duignan, Bear Stearns.

Good morning.

I might know the answer to why your dental business was weaker than you expected in Germany.

Currently, 100,000 dentists in Germany have ownership in biodiesel plants and they're not making much money right now, so (LAUGHTER) maybe that's your answer!

I will use that next time, Ann.

Thank you!

Yes, it all comes back to ethanol or biodiesel issues.

My questions run the same, the same issue.

You did note that life science instruments in Leica Microsystems was strong in Europe.

Can you just compare and contrast what you think was going on in dental versus what you think was going on in Leica in Europe?

Well, again, I think the independent dentist, the spending psychology is different than the more corporate and more institutional spending that we see, both on the research and on the clinical side at Leica.

That's a worldwide phenomena.

I think we saw a first half, whether it was their biodiesel investments or some other considerations -- Dennis in Germany particularly, we saw the UK a little bit soft as well, not spending in the way we would've thought in the first half, but again feel like things are picking up as we speak.

We've had a very good run with Leica and are optimistic that, as Dan says, it will probably slow a bit sequentially but still be very healthy, very healthy growth rates there, because of the spending, again both from a research and from a clinical perspective.

Okay, thank you.

Just on pricing, you noted the pricing contributed in both the industrial technologies and tools and components.

But what's the pricing environment like in the other businesses, or at least, again, could you compare and contrast maybe pricing in the U.S.

versus pricing outside of the U.S.?

Ann, the price we've been getting kind of between 1.5 and 2 points the last six or seven quarters has been pretty consistent.

Both within the professional instrumentation and Medtech businesses we continue to get it, particularly in the consumable businesses, the consumable pieces of those businesses.

So they're probably -- they obviously don't have quite the raw materials to offset that we do in tools and Motion, so it's probably a little bit less than a 1.5 points across those segments.

Okay.

Then the other businesses, or just in general, - are you seeing the ability to increase prices better in the U.S.

versus the rest of world, or vice versa?

I think, on the equipment side, it's easier in the U.S.

I think, on the consumables piece, we get in both regions.

Stephen Tusa, JPMorgan.

Good morning.

On the product ID business, a pretty good result in the core business there, and I know Domino is talking about some pretty positive market trends.

Could you just comment on the market there and what you are seeing, and any opportunities with all this news around the track and (inaudible) from China, that kind of opportunity with being a little bit more on top of imports coming in with, you know -- the track and trace opportunity internationally?

Sure.

Well, I think maybe two comments, Steve.

First of all, just in terms of the core coding and marking businesses, as you said, we think we're doing very well against a backdrop that suggests healthy market demand.

We would say that is a worldwide phenomena right now.

I think we're very pleased with the performance we've seen out of Videojet in the first half, as they have built, sequentially, strength in the core business, obviously camouflaged a bit because of the tough comps with the low-margin USPS programs that didn't repeat this year.

With respect to track and trace, let's just step back for a moment.

We love this business because there are a number of application trends like track and trace, like product safety, supply chain efficiency and the like, where we can really help the Unilevers, the Nestles, the Pepsis, the Procters of the world tackle those challenges.

I think what's happened recently around product safety and counterfeiting -- that plays very well both to the core products and the core applications that we serve today, as well as some of the newer opportunities out there, like track and trace.

So we remain very bullish, both inorganically as well as organically, around these opportunities.

Recent headlines help, but I think the undercurrent has been there for some time.

Then on the guidance, I'm just -- sorry, I might have missed this.

But what is included in that guidance?

Is the $0.02 gain from this quarter included in that guidance (inaudible) the dilution from the deal?

Yes, the $0.02 gain is not in the guidance.

The $0.02 we're going to have dilution from Power, which we have just gotten regulatory approval and the transaction will close in the next, in the coming days.

That $0.02 of dilution is in the guidance.

I got you.

Then, did you put out a core growth number?

Did you kind of reaffirm the 5%-plus for the year?

Is that what you did on core growth?

Larry did that in the Q&A earlier.

All right, I appreciate it.

Thank you.

Robert LaGaipa, CIBC World Markets.

Just a few questions -- I guess, one, with the 5%-plus core growth, can you just talk about the composition of that and how that's changed in terms of your expectations moving forward?

I think you had mentioned earlier, you know, tax being a little bit more conservative on that end.

You mentioned the acceleration in dental on the Medtech side.

Any other changes in terms of the composition we should be looking for?

Well, I think, if you just go around the horn, professional instrumentation I think has been growing at a high single digit rate here.

That continues with both engines, both test and environmental (inaudible).

Obviously, at Medtech we've alluded to, I think, continued strength in aggregate with a bit of a mix shift with a slight sequential slowing at Leica off some white-hot numbers.

We would expect, as I mentioned on the last call, to see the dental equipment business in the second half pick-up.

We would look at I think industrial tech is also improving sequentially during the second half, though obviously our expectations, as I indicated to Bob Cornell, are modest in the Motion businesses.

Tools and components again, I think there we will see sequential improvement and are optimistic, particularly as we get closer to the holidays, that we will see improvement in mechanics and tools, particularly.

Specific to tools and components, you know, what gives you that level of optimism moving forward?

Obviously, in light of Sears and in light of big-box stores, etc., are you more optimistic on the sales end of things, or are you more optimistic on the margins moving forward?

Well, we can and should improve the margins in tools.

That's more in our control, volume being somewhat stable.

I think, as we see what works and what doesn't at retail and in the industrial channels and tools, we learn a little bit more each quarter and obviously are optimistic, assuming no change in the economic conditions, that we can improve our performance sequentially at the top line as we get into the second half.

Bob, just back on your first question on the sequential improvement in growth, just the absence of these comp issues, if everything else stayed the same of what we did in Q2, we would be right around 6% in Q3.

So, we don't need an acceleration of Motion to get to that level, if everything else stays the same and just the last thing is some of the comp issues.

Right.

With regard to tools margins, are you speaking sequential improvement or do you think there's a possibility that you can actually get higher year-over-year margins in the back half, in tools?

Well, we're going to continue to struggle.

Jake Brake will be down every quarter this year, won't be down as much in the second half as it was in the first half, so in terms of the total segment, we will probably continue to be down.

We are fighting some headwinds in the commodity side in the tool business, which we are largely offsetting but not entirely.

I got you.

Lastly, just a clarification -- just with regard to the core growth, we noticed that, in professional instrumentation, I mean, obviously a consist environmental and electronic test, but you mentioned the core growth in professional instrumentation being 8.5%, but environmental 8.5 and electronic test at 10.

So I would think that number would be a little bit higher.

What am I missing there?

Electronic test is just under 10, and environmental was just over 8, so kind of blending two, and with a little bit more weight on environmental gets you to that.

I got you.

Great.

Thank you very much.

Chris Kotowicz, A.G.

Edwards.

Good morning, guys.

Larry, we all know that you bought Sybron to have better access to products for your company dental plan!

(LAUGHTER)

Well, call it my Victor (inaudible) moment.

I'm learning a lot, let me tell you.

The core growth, I will take maybe a different angle -- how much of the second-half strength would you break out as easier comparisons versus orders in hand, right?

So you mentioned Trojan has got a pretty good backlog and it looks good into the second half.

Some of your other businesses maybe have the same.

Could you kind of give us a sense of how much of that you can see pretty tangibly versus just kind of an expectation?

Well, I think, if you look around our business, Chris, as you know, we don't have a long list of businesses that stack up the backlog several quarters in advance.

I think the optimism we have about our performance here and to come in the second half is really a function of the momentum we have in many businesses, a view that the economic environment will continue to stay positive and helpful, and I think a recognition that is we have stepped up our sales of marketing and new product introductions, that we will continue to, on-balance, see contributions from those investments.

We could break it down business by business, but again, we don't carry a lot of backlog into the second half here that guarantees us that 6+%.

We have to go make that happen but are confident we can, given what we see right now.

Okay.

Then maybe geographically, Europe and Asia have been really strong for a lot of companies.

In the absence of that, I think we would have a very different reaction to the industrial sector, just given what is going on in North America.

What are you guys seeing?

Are you seeing more growth in Europe, in particular relative to North America on a core sales standpoint, or are your businesses really isolated from that, given the platforms that you have?

We are seeing good strength in Europe.

Europe grew kind of high single-digit rate in the second quarter.

China, almost all of our businesses were up kind of mid teens in China.

In the U.S., if you kind of adjust for postal, I think we highlighted that we -- adjusted postal grew slightly in the first quarter but grew a little faster here in the second quarter.

Okay, so maybe some acceleration there.

Then maybe just a clarification, because I thought I heard Larry say Vision Systems was up 20% in the quarter, year-over-year?

That is correct.

Okay, I just wanted to be sure I had it right.

Yes, they are performing very well.

Thanks, Chris.

Ajit Pai, Thomas Weisel Partners.

Two quick questions, if I may?

The first is you mentioned the growth in China.

Could you give us some color as to, in this quarter, what the percentage of overall sales was from China and then overall from Asia?

The second question would be just your balance sheet, you know we had some pretty solid cash flows here.

You know, the pace of acquisitions has been fairly moderate, and a number of companies have been opportunistic in raising debt in an environment like this.

So, could you give us some color as to how you're thinking about leveraging your balance sheet, and potentially how you prioritize potential uses for cash right now in terms of acquisitions, dividends, potentially a buyback?

Yes, those two.

Maybe, Ajit, on the second point, I think, as an A+ rated company, we've got a lot of capacity here and we are clearly -- as Larry mentioned earlier in the call, we are spending a lot of time looking at acquisitions and think that our balance sheet has a lot of capacity to take on additional leverage without impacting our credit rating.

So, I don't, given our access to commercial paper, I don't think we feel the need to go out and lock in some long-term debt but will clearly spend the time looking to deploy more capital here.

Again, I think, Ajit, we would, at this point, be rather optimistic that we will make some meaningful moves here in the second half of 2007.

I mean, you never can forecast that, but again, given the activity level, given the pipeline that we reviewed just yesterday, we feel pretty good in the regard about what could happen here in the back half.

I got it.

Then, on Asia and China, the percentage of sales?

I think, in terms of the first question, growth, China was up mid teens in the second quarter, for the full year looking to be 600 million,700 million.

For the whole company, Ajit, I would have to get back to you with that number.

Okay, thank you so much.

With no other questions, I would like to turn the call back to Mr.

Wilson for any additional or closing comments.

I want to thank everybody for joining us today.

As a reminder, the replay number is 888-203-1112 with the confirmation code of 2914902.

As always, Dan and I will be available for questions after the call.

Thanks again.

Again, that does conclude today's call.

Thank you for your participation and have a good day.