Danaher Corp (DHR) 2008 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Danaher Corporation, second quarter 2008 earnings results conference call.

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

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

(OPERATOR INSTRUCTIONS).

I would now like the turn the call over to Mr.

Andy Wilson, Vice President of Investor Relations.

Mr.

Wilson, you may begin your conference.

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 would like to point out that our earnings release, Form 10Q, a slide presentation supplementing today's call and reconciling and other information required by the SEC Regulation G to any non-GAAP financial measures provided during the call are all available on our investor section of our website at Danaher.com under the heading earnings and will remain available following the call.

In addition the audio portion of the call will be archived on the investor section of our website later today and will remain archived until our next quarterly call.

A replay of this call will also be available until is July 22nd.

The replay number is 888-203-1112 in the U.S.

and 719-457-0820 internationally with the confirmation code of 4979941.

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

During the presentation we will describe certain of the more significant factors that impact the year-over-year performance.

Please refer to the accompanying slide presentation and other related presentation materials supplementing today's call, as well as the MD&A section of our second quarter Form 10Q for details regarding additional factors that impacted year-over-year performance.

Also, all references in the presentation to earning, revenues, and other specific financial metrics relate only to the continuing operations of Danaher's business unless otherwise noted.

Our earnings for the period include the results of operations of Tektronix, which was acquired in the fourth quarter of 2007.

Included in our earnings are certain noncash charges related to Tektronix acquisition for fair value adjustments to recorded inventory and deferred revenue, which reduced total net earnings by approximately $10 million or $0.03 per diluted share in the second quarter and approximately $29 million or $0.09 per diluted share in the first half.

These charges are included in our reported results for the second quarter and the first half of 2008, but are excluded from the adjusted earnings per share guidance that we will provide at the end of the prepared remarks.

The amount of these noncash charges related to the Tektronix's acquisition is expected to reduce earnings by approximately $0.13 per share for the full year 2008.

Throughout the call, all references to noncash acquisition related charges for Tektronix relate to these items.

I'd also like to note that we'll 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're made and we do not assume any obligation or intend to update any forward-looking statements.

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

Andy, thanks.

Good morning everyone.

We are pleased to report that our second quarter earnings per diluted share were $1.09, representing another record second quarter for Danaher and a 14.5% increase over last year.

Included in the second quarter earnings per share was approximately $0.03 per share of noncash acquisition-related charges for Tektronix, as well as the benefit of approximately $0.03 per share related to discreate tax items and other tax-related benefits.

Adjusted earnings per diluted share for the second quarter improved 17% over last year's adjusted earnings per share.

Revenues for the quarter increased 25% to a record $3.3 billion with core revenues up 5.5%.

Acquisitions contributed 14% and we had positive currency effects of 5.5%.

Robust growth in our water quality and medical technology businesses led the way and an improved performance at motion was partially offset by continued soft demand in our consumer-driven businesses.

Year-to-date revenues increased 22.5% to $6.3 billion, as core revenues grew 4%.

Year-over-year gross margin for the second quarter improved approximately 190 basis points to 47.5% primarily due to the impact of higher gross margins in our new businesses and improved mix of revenues from existing businesses, as well as on going cost-savings initiatives.

SG&A expenses were 26.2% of sales compared to 24.4% a year ago due primarily to higher SG&A levels in our new businesses.

Research and development spending as a percentage of sales for the three months ended June 27th was 5.8% as compared to 4.9% last year.

This increase was largely due to the impact of newer businesses with higher R&D levels, primarily Tektronix, but also because of increased investment levels in our MedTech businesses.

Operating profit for the quarter was $510 million representing a 15% increase over the second quarter of last year.

Included in the second quarter this year operating profit was approximately $13.5 million of noncash acquisition-related charges for Tektronix.

Adjusted operating profit for the second quarter increased 21.5% year on year.

For the first six months operating profit was $924 million, a 13.5% increase over last year.

Adjusted operating profit for the first six months increased 20.5% year on year.

Operating margins in the second quarter was 15.5%, a 130 basis point decrease from 2007.

The impact of newer businesses, including the noncash acquisition related charges for Tektronix, negatively impacted margins by approximately 65 basis points.

Also impacting year-over-year margin comparisons were prior year one-time gains of approximately 50 basis points.

Adjusting for these items operating margin was down 15 basis points in the second quarter compared to the prior year.

Our operating margin has been impacted by both inflationary pressures and by the effective currency changes.

In addition, included in these results is the impact of approximately 50 basis points from our continuing restructuring spending and the settlement of certain legal claims.

Our effective income tax rate for the second quarter was 24%, which benefited from the impact of certain discrete tax items as well as a slightly lower tax rate.

We expect our effective tax rate for the balance of the year to be approximately 26%.

Net earnings were $363 million for the quarter, an increase of 18% compared to net earnings in the second quarter of last year.

For the first half net earnings were a record $640 million, an increase of 14.5% over last year.

Included in net earnings are noncash acquisition-related charges for Tektronix.

Adjusted net earnings for the second quarter and first half improved 22% and 20% respectively over adjusted net earnings from last year.

Operating cash flow for the first six months of 2008 was $915 million, 33% higher than the same period last year.

Second quarter free cash flow was $537 million, an increase of 65% over the same period last year and represents a record quarterly free cash flow performance.

Improvements in working capital from first quarter levels, primarily related to receivables collections, contributed to this record performance.

Free cash flow for the first half was $831 million, representing a 34.5% increase over last year.

Our free cash flow to net income conversion ratio was 148% for the second quarter and 130% for the first six months.

We continue to be optimistic about our ability to deliver free cash flow in excess of net income for what would be our 17th year in a row.

During the quarter we reduced our outstanding debt by over $400 million and over $650 million for the first six months.

Our debt to total capital ratio at the end of the quarter was 23%, with over $280 million in cash and cash equivalents at quarter's end.

Turning to our operating segments, Professional Instrumentation revenues increased 52.5% for the quarter with core revenues up 4%.

For the first half of 2008, revenues increased 54% with core revenues contributing 4.5%.

Operating margin for the 2008 second quarter was 20.1% as compared to 23.2% in the prior year, as the dilutive impact of recent acquisitions and the noncash acquisition related charges for Tektronix negativity impacted margins by more than 300 basis points.

Year-to-date operating margin decreased 300 basis points to 18.4% when compared to 2007 due principally to these same factors.

Environmental Platform revenues grew 23.5% with core revenues up 6%.

For the six months ended June 27th, sales increased 24% with core revenues contributing 6.5%.

Water Quality core revenues grew at a low double digit rate in the second quarter.

This represents the eighth consecutive quarter of double digit growth at Hach Lange.

We continue to see solid demand for both our process and lab products with particular strength in Europe as well as in Asia where we experienced sales growth of more than 20%.

During the quarter we launched our new total organic carbon analyzer, the Anatel PAT 700, which provides advanced analytics and digital communications for pharmaceutical manufacturers and enables certain water analyses to be moved from the lab bench to the plant in an online mode.

Trojan UV delivered mid-teems core revenue growth for the quarter, reflecting significant demand for our waste water solutions in both Europe and in China.

During the quarter Orange County, California was awarded the 2008 Stockholm Industry Water Award, recognizing the county's efforts to develop the world's largest water purification plant for ground water replacement.

A key to the success of this project was the incorporation of Trojan's world class UV disinfection technologies.

ChemTreat achieved mid single-digit revenue growth in the quarter.

During the quarter the Company won several large industrial contracts and expanded its international sales initiatives, leveraging the water quality group's existing sales infrastructure.

We look forward to sharing more about our water quality businesses at our mid year analysts and investor meeting slated for September 3rd in Loveland, Colorado.

Gilbarco/Veeder-Root's core revenues grew at a low single-digit rate in the quarter.

Its increased sales of our environmental and payment products and overall strength in most emerging markets were partially offset by soft dispenser sales in Europe and North America.

During the quarter we announced the signing of a definitive agreement to acquire Auto Tank Group based in Finland.

With approximately $80 million of annual revenues, we expect the acquisition of Auto Tank to help Gilbarco's footprint in Scandinavia, eastern Europe and Russia by providing payment systems, installation and maintenance services to our customers there.

The acquisition is subject to regulatory approval and other customary closing conditions and is expected to close during the third quarter.

Moving to Test and Measurement, revenues grew approximately 100% in both the quarter and in the first half with core revenue contributing 0.5 of 1% during the quarter and contributing at a low single-digit rate for the first half.

Blue core revenues grew at a mid single digit rate in the quarter led by demand for our new low cost thermography products, the Ti-10 and the Ti-25.

Geographically we experienced growth across all major regions with particular strength in Latin America and Asia.

Fluke Network sales were down low double digits during the quarter resulting from softer sales to and through the major telecom providers, in addition to a difficult comparison due to the large, due to a large project a year ago.

We expect F-Net results to improve sequentially over the balance of the year, but to remain challenging.

At Tektronix revenues declined at a high single digit rate in the quarter, which is consistent with our expectations.

We experienced double digit sales growth in several product lines, including certain scope and video test categories as well as in network management, where core revenue growth was driven by large customer wins in Asia and strength amongst our U.S.

carrier base.

This growth was offset by difficult year-over-year comparisons due to a very significant prior year shipment to a single customer, as well as softness in our network diagnostics business.

The launch of our new DPO 3000 Digital Phosphor Oscilloscope, which is used in designing, testing and insuring quality control of electronic products is going exceptionally well with strong order performance and excellent customer awareness globally.

The collaboration among Tek and Fluke associates is progressing extremely well.

In emerging markets the teams have been working together leveraging combined resources to expand our sales presence in these important and rapidly growing regions.

We have also seen strong support from a number of our large U.S.

distributor partners, including joint sales and marketing promotions for the Fluke and Tek basket of products.

We are quite pleased with the Company's high teens operating margin performance in the first half of 2008, excluding of course the noncash acquisition related charges.

While still early, this is a substantial improvement versus the same period a year ago and is a testament to both the quality and committment of the Tektronix's team and their embrace of DBS.

Moving to Medical Technologies, revenues for the quarter increased 18.5% compared to 2007 and core revenues were up 10% with Radiometer, Leica and Dental all delivering strong performances.

For the first half revenues increased 15% with core revenues up 6.5%.

MedTech operating margin for the second quarter was 10.8% compared to 11.1% a year ago, due primarily to the impact of lower operating margins from our newer businesses.

The negative effect of currency changes, given our largely European cost base in MedTech, as well as restructuring and increased investments in both new products and go to market activities.

he operating margin for the first six months decreased 70 basis points to 11.1% as compared to the first is six months of last year, a result of these same factors.

Core revenues in our Dental businesses improved sequential and grew at a high single digit rate in the quarter.

Subron grew at a mid single digit rate, led by strong performance from several new product introductions and solid general dentistry consumable sales.

Our newly launched twisted file is designed to meet endodontist' needs by making rotary root canal preparation safer and more predictable, resulting in a higher level of doctor and patient satisfaction.

We continue to see some pockets of softness during the quarter, particularly in orthodontics, although this portion of the business still grew at a modest rate.

In KaVo we experienced robust demand for our 3D imaging product in both Europe and North America, where the new Gendex CB 500 medium field of view 3D Cone Beam imaging product has been very well received.

Our first quarter initiatives related to our Asian distribution channel continue to gain traction and we believe these changes will enhance our ability to rapidly expand our position in this fast growing part of the world.

During the quarter, KaVo completed the acquisition of Infrared Fiber Systems, a small producer of optical fibers for laser power transmission in dental applications, including hard tissue lasers.

Radiometer's core revenues grew at a high single digit rate for the quarter, driven primarily by strong consumable sales across all major geographies with particular strength in Russia, where we experienced double digit growth.

The roll out of AQT in Europe is progressing with positive reactions from the market.

Leica core revenues grew at a mid teens rate in the quarter, notwithstanding the mid teems performance a year ago, driven by robust compound microscopy demand as well as more than 20% growth at Leica Biosystems, our pathology diagnostics instruments and consumables business.

We experienced growth across all major geographies with particular strength in Asia and Europe.

During the quarter, Leica acquired Core Tech, a small manufacturer of pathology instruments and consumables.

We expect Core Tech will enhance our ability to deliver end to end workflow solutions for our customers at Leica Biosystems.

Moving to Industrial Technologies, revenues increased 9.5% in the segment for the quarter with core revenues up 4%.

For the first half revenues increased 6.5% with core revenues contributing 1%.

Operating margin for the second quarter was 17.1%, a 160 basis point decrease compared to the same period last year, due primarily to a prior year gain on indemnity proceeds from a litigation matter, which impacted margins by approximately 155 basis points, as well as restructuring charges incurred in the second quarter of this year.

The second quarter restructuring activities eliminated more than 150 positions in the segment.

Year-to-date, operating margin decreased 120 basis points to 16%, largely due to these same factors.

Product ID core revenues increased 1% during the quarter, as delays in certain large parcel projects and a reduction in traditional USPS projects at Accu-Sort partially offset low single digit growth in the core marking and coding side of the business.

For the first six months sales increased 5% with core revenues declining slightly.

In Videojet, growth in consumables and in our laser and thermal transfer overprinter product lines was partially offset by softer demand for our continuous ink jet product offering as customers anticipate the upcoming launch of our new continuous ink jet 1510 high volume coding printer.

The 1510 will consolidate six existing CIJ platforms into one and is expected to provide customers with industry-leading up time and improved maintenance requirements.

Switching to Motion, revenues were up 9.5% in the quarter with core revenues contributing 3%.

Growth in our Aerospace and Defense, flat panel display and elevator businesses was partially offset by softening demand in the U.S.

and Europe for our standard motor and drive products.

For the first half sales increased 5.5% with core revenues down slightly.

We are encouraged by the improved performance at Motion and expect the third quarter performance to be comparable or slightly better than the second quarter results.

Finally, moving to tools and components, revenue for the quarter was up 4% with core revenues contributing 3.5% primarily driven by a strong performance at Jacob's Vehicle Systems.

For the first half, revenues are up 1.5% with core revenues contributing 1%.

The operating margin for the quarter was 13%, a decrease of 90 basis points from the prior year, largely due to increased commodity costs, primarily steel, and the impact of lower production levels within mechanics hand tools.

Year-to-date, the operating margin decreased 10 basis points to 12.4% due principally to these same factors.

Mechanics Hand Tool revenues declined 2% in the quarter, as Sata's double digit growth in China was offset by weakness in both professional and consumer businesses in the U.S.

Our sale through at Lowe's was positive in the quarter, while customer demand at Sears remained soft.

For the first half mechanics hand tool's core revenues declined 4%.

During the quarter we announced an agreement with Advanced Auto Parts to supply their stores with a full compliment of our GearWrench brand of tools with revenues starting in the second half of this year.

Tool Group also received a contract to supply General Mechanics tool kits to the U.S.

Army over the next five years, with a contract valued at approximately $100 million, which represents the largest Government contract win ever by the tool group.

We expect shipments to begin later this year.

So to wrap up, we are pleased with our performance in the second quarter, record revenues including a solid core growth performance, record earnings and strong free cash flow.

And while we are keenly aware of the impact at higher commodity prices and the difficult credit markets are having on consumer consumption and the economy as a whole we remain encouraged by what we see across the majority of our businesses.

And those businesses where we have seen top-line softness, we have taken action and implemented cost initiatives to protect the bottom-line.

And those businesses where we have opportunities to invest in growth, we have continued to make those investments.

As always our focus is on delivering strong financial results regardless of the economic environment.

As a result, our adjusted earnings per share guidance for the third quarter is estimated to be in the range of $1.09 to $1.14, which excludes the noncash charges related to the Tektronix acquisition.

We are raising our full-year 2008 adjusted earnings per share guidance from $4.30 to $4.40 to a new range of $4.34 to $4.42, which excludes both the acquisition charges related to Tektronix and the benefit of the $0.03 per share of discrete tax items realized in the second quarter.

Thank you, Larry.

That concludes our formal remarks.

Nikki, I think we are now ready for questions.

(OPERATOR INSTRUCTIONS) We will take our first question from Mr.

John Inch with Merrill Lynch.

Please go ahead.

Thank you.

Good morning.

Morning, John.

Morning, John.

So margins under a little bit of pressure.

The top-line was great, margins under a little bit of pressure in terms of the sequential year-over-year trend.

Could you guys talk about how much of that kind of overall was raw material pressures and how much was structuring actually incurred in the quarter and what the results would have been ex that?

Sure.

John, I think that, just I mean at head line level, clearly we were up 35 basis points year on year absent basically 50 basis points of negative impact from restructuring and the legal settlement that we mentioned.

Clearly third quarter in a row where we are taking these restructuring actions.

I think they're the right things to do right now particularly.

We could do it so we did it despite the context where obviously we have got earnings up mid teens and we had very strong cash.

I think the input inflation that we reference is very much what you are reading about in the papers.

Metals inflation, clearly at Tools particularly, is pinching margins there.

You see that.

I think we are seeing the energy cost really pop up in a lot of places from freight to travel.

So that's an across the board challenge.

That said, we still have positive PPV, positive purchase price variance from our corporate procurement and low cost region initiatives.

It is just not as much as it would be in a more normal environment.

the other thing I would just highlight is in MedTech, again the OP in dollars is up 16% year on year.

Very pleased with that but we obviously have a situation where we have a Euro denominated cost base, by and large, at Radiometer, at KaVo, and at Leica and that strong Euro depresses the ratio.

But when you look at MedTech, ex the acquisition restructuring noise, we were up 50 bps in the quarter and that Euro pressure that I referenced probably is suppressing about 50 basis points of OP margin expansion elsewhere due to the good work in the business.

So it is clearly a tougher environment, probably stays challenging in that regard, but I think we know what we need to do here as we look forward to the third quarter and the second half.

So, John, in total, absent the restructuring and the one time items we referenced that hit us by roughly 50 basis points, our operating margins would have been up 35 basis points across the Company.

Was restructuring down, I think you did about $10 million in the first quarter, was it comparable.

50 basis point is approximately $15 million in the quarter.

The large majority of that was restructuring, there was a little bit of kind of some settlement of some legal claims.

Just to switch gears here, I guess Photon Dynamics, one of your big customers in Motion, was acquired.

Is that going to affect your outlook for that business in anyway, do you think?

John, I think the Orbotech transaction with Photon is something we need to sort through.

We know them from our Servotronics business in Israel of course, but it is really too early too tell.

And our next question is from Robert Cornell with Lehman Brothers.

Please go ahead.

Yes.

Hi guys.

Hi, Bob.

Good results.

The -- a couple of questions.

First of all, on Tektronix and Fluke, the organic growth at Tektronix was off a little bit, I mean, it was, I think, been running ahead of what you thought so far beginning of the year and this is off.

Maybe you could talk a little bit about why that was and then maybe give a little more detail about the integration whether you are getting, whether the integration is a net disruption or a net positive and you talked about the distributors and so forth and so on but maybe some more color around the organic growth in the integration.

Sure.

Bob, the -- let me be clear, we are right where we thought we would be and right where we want to be with Tek here at mid year.

It is interesting, Dan and I were going back through the board plan for Tek the other day.

We are almost right at the dollar level of revenue that we expected with Tektronix.

So we knew we had a tough comp.

We knew there were some other issues like network diagnostics offsetting some of the good growth I mentioned in the prepared remarks.

So no surprises there quite frankly.

OP is the positive surprise.

We are ahead of schedule.

I think what we have seen thus far is the business is everything we thought it would be from a brand, from a technology, from a global reach perspective with the team last month in Japan, in fact, and walked away I think very encouraged by what we are doing there.

Really the team around the world just tremendous people.

I think the synergies that we see clearly are there, both perspective revenue end costs.

We have talked about the cost progress this year.

We are well ahead of the $40 million year one reduction.

That bodes well for '09 of course.

We continue to believe that there are opportunities from product and from a channel perspective for Fluke and Tek to work together and I think we are going to help them be, frankly, more aggressive and more competitive in the marketplace.

So I think all in all we are where we thought we would be feeling very good about the addition of Tektronix and looking forward to many good years ahead.

Yes, that's question one.

Question number two if you don't mind is of course there was a lot of chatter all this year about possible optional dental procedures, you mentioned that briefly with your orthodontics comment.

Maybe you could remind us how much of the dental business would be considered high end deferrable and so how is that doing, what is the outlook.

Well, the highest end bit of our business is really the Ortho or the Ormco business where we saw a deceleration of the core growth trends there but we were still nicely positive.

I think it has been pretty well documented in the U.S.

that Ortho starts have softened a bit here, but I think the other thing to keep in mind is while that has taken place, is doctors transition case starts in patients to our self ligating Damon technology, we get a very positive mix benefit there, which is why we were able to show the growth that we did at Ormco despite the softness in case starts.

If we look at Ormco and their related high end businesses as a percent of the total, we are talking -- .

Probably 10% of the total dental platform.

So you had 90% of it was up high single digits and you get 10% which was kind of flat to slightly up resulting in sort of high single digits for all of dental.

Our next question is from Deane Dray with Goldman Sachs.

Thank you, good morning.

That was a nice rebound in core revenue growth for the quarter.

And it takes us back to the first quarter when you disclosed an order growth which is sort of a new data point for Danaher.

Is that -- what was the comparable order growth in the second quarter?

Is that a data point that we should expect on an ongoing basis.

I don't think that's a data point that we are going to talk to on an ongoing basis, Deane.

I think we talked to that, I think, to put the first quarter shipment number in context.

I think you see that reading through as we had anticipated here in the second quarter.

But since you are asking, we were -- orders were up at a mid single digit rate in the second quarter

That would indicate a nice trend line there as well.

So still confident about the balance of the year for core revenue growth?

Yes.

No, I think we are very pleased with the second quarter performance.

I think particularly when you look at the way all four segments contributed this time around.

I think there was a minimum of 3.5% as you look across the four segments, clearly Water and Leica did it again.

The Water growth, as we mentioned in the prepared remarks, is very broad based.

All three legs of MedTech really performed, I think, quite well.

I think as we look forward though, Deane, clearly with the decidedly negative macro news flow out there, we want to make sure we stay grounded.

I think when you look at the first half in its entirety, you see 4% core growth.

I think that's a good basis for projecting forward into the second half.

I think we will be in line or perhaps slightly ahead of that, that level with respect to core growth in the second half.

I think as we look at the third quarter particularly, we would expect to see all four segments in a mid single digit zone.

Clearly the high fliers, Water and Leica, are likely to de-sell off those double digit growth rates but still perform well.

I think we will see tools in motion incrementally get better as we headed, I think, flag through the second quarter.

MedTech should be in the mid to maybe high single digit range.

I think this whole 179 incentive in dental equipment around KaVo is a bit of a wild card.

It should be a net positive for us, but what that does for third quarter versus fourth is a little unclear right now, particularly with respect to order books.

I think Gilbarco built a fair bit of backlog in the second quarter, which should bode well for them here in the third.

So all in all I think we would expect a second half in line with the first half, obviously mindful of the risks that are out there and that's why you see us taking the cost actions as well, just to make sure we protect in the event things get sloppier.

Our next question is from Jeff Sprague with Citi Investment Research.

Please go ahead

Jeff?

I'm sorry.

The mute button.

A little phone challenged here this morning.

On the telecom side, Larry, can you give us a little color in terms of what you are seeing in terms of spending priorities?

As you noted maybe not too much different than what you thought.

But just the complexion of demand here the next couple of quarters?

Yes.

I think what we are, when we talk about it in a Fluke Network context, we are really talking about a big project with respect to network optimization that doesn't repeat this year.

At the maintenance or the technician level what we are seeing is clearly a tightening of the belt and in turn lower spending levels for those, if you will, those tools that go on those belts amongst the maintenance techs out in the field.

I think over at Tektronix, specifically Tek communications, clearly seeing the carrier spend money broadly in network management and optimization.

That's the core business of what we do at Tek and that's the business that was up double digit.

We call that network management.

And when we say networks, again, those are really the carriers not the enterprise customers that we serve at F-Net The other bit of the business that has been weaker is really what we call network diagnostics, Jeff.

And that's where we are working with the equipment manufacturers, which is, I think you know, have been soft for a while and have, I think will continue to be soft as we look through the balance of this year.

And Larry, just as a follow, separate follow up, on the deal side.

Yes.

Can you give us -- you rattled off a couple of deals.

Most of them sounded small except for the one in GVR but what were the acquired revenues in the quarter on a go forward basis and what does the pipeline look like?

A little over $100 million, Jeff, of acquired revenues, most of that being the pending Auto Tank.

About $200 million with Auto Tank, a little over $100 million on the three other deals.

Sorry.

Andy always has the facts.

The pipeline, Jeff, I think continues to be very promising relative to the second half.

We have seen really no let up in activity.

I think we have seen in isolated situations encouraging effects from the, the tough capital markets with respect to value, but as I think we've said a couple of times during the second quarter, it is still very early, I think, in that adjustment.

But we continue to be, I think, poised here to be an active strategic acquirer in the second half

Our next question is from Wendy Caplan with Wachovia.

Please go ahead.

Hi, good morning.

You mentioned that in product ID that there were some order delays.

Was this exclusively related to the customers waiting for the new product?

Were there any other issues?

Are you seeing other order delays anywhere else?

And can you comment on Product ID share, please?

Good morning, Wendy.

The delays that we referenced in product ID were specific to Accu-Sort, and again, the customer base there, U.S.

Postal Service and some of the prominent global parcel delivery folks, we saw some projects slip in the first quarter and in turn, they have, they have continued to slip.

I think you have seen some of those companies talk about reining in capital spending this year as their volumes have declined.

We have certainly been on the receiving end of that.

I would really contrast that with what we have seen at Videojet.

That's where the new product reference is relevant.

We have a new printer coming in as part of our platform consolidation effort there.

Not only with Videojet but some of the other acquisitions and I think we probably had some, call it modest negative effect from the pending launch as people who know about this product and know that it is coming and are excited by it held off on some purchases.

But the core business there I think is performing pretty well.

No signs amongst that customer base of capital reductions or delay but obviously in that business, like in many of our businesses we are watching carefully the, the trends.

And Wendy, just as a reminder on Accu-Sort, it is a low, particularly that project business, is at low margin.

We are currently forecasting that piece to be down double digit in Q3.

That could be a year on year reduction of over $5 million of revenues but the operating profit of that $5 million is less than $500,000.

So not happy about the revenue picture there but it is not having much of a profit impact.

Thanks.

And just the last part of the question was about market share in product ID and as well are there any other areas of the Company that you are seeing any kind of project delays related to customer spending?

I think our share in product ID, particularly around, around Accu-Sort or excuse me around Videojet continues to be strong.

We have a number of good competitors there, but it is a good market and I think we do well and obviously look forward to getting the 1510 out and the products that come behind it.

As we look across the business, given what we saw to Deane's question with respect to order flow and the like, really nothing that is pronounced, Wendy, as it is in at Accu-Sort with respect to big customers clearly delaying, delaying programs.

Certainly you have heard us talk about a couple of businesses where certain product lines are seeing soft demand, GVR being another example, but I think that really is simply well correlated to the head lines out there today.

Thank you.

Thank you, Wendy

Our next question comes from Richard Eastman with Robert Baird.

Please go ahead.

Good morning, Larry.

Good morning, Rick.

Dan.

Just a quick comment, if you will.

Across platforms and businesses, what's your perspective on the developing dynamics into Europe, Larry.

I mean are things turning down as quickly as some of the data points suggest and are you seeing that specifically in any portions of the business?

Rick, I think if you look at our Danaher-wide European performance in the second quarter it was fundamentally in line with what we saw in the first quarter.

Obviously there is some noise there with the Easter timing in '08 compared to '07.

So, we really have not seen a material or marked shift there broadly, but there have been a couple of pockets.

I would say Motion, which can be a bellwether at least with respect to some of our OEM oriented customers, clearly has presented some softness or deceleration there.

And I think we are very, very focused right now on seeing when and where the macro indicators out of Europe bleed into our business.

But you wouldn't be overly concerned about Europe if you were simply looking at our second quarter figures.

But we operate with a little bit more, with a different mind set.

So we are going to take nothing for granted over there right now.

Rick, one thing that helped core in Q2 was very strong performance in eastern Europe, Russia, Turkey, we actually saw an acceleration in those regions from Q1.

All right.

Maybe as a follow up.

Larry, in terms of the Gilbarco business, are you treating the downturn as structural or cyclical?

Well, I think it is a mixed bag there, Rick.

I wouldn't want to characterize it as structural because we saw excellent growth in our environmental products, both our air and water quality products there.

Retailers continue to invest in payment security and payment systems .

So we actually saw, I think, very good growth in the quarter despite margins getting pinched the way they have been really around, around the world.

You clearly see the softness with dispensers, but to the extent that these stations continue to operate, people are going to continue to use gasoline, people are going to sale gasoline.

We think that's an opportunity to be a provider of choice.

So I think this is more -- the approach is probably somewhere in between in that we are going hard after costs, not only here in the North American operations but really around the world.

Okay, thank

Thanks, Rick.

Thank you, Rick.

And our next question is from Ajit Pai with Thomas Weisel, please go ahead.

Good morning.

Morning.

A couple of quick questions.

The first one is just looking at the amount of your net debt going down to about $500 million.

Could you give us some color as to how much you have available right now with your credit facility that already open to be able to finance acquisitions right now?

Ajit, just in terms of existing facilities it would ber approximately $1.5 billion today.

Got it.

I think we would be able to access more but just given existing lines.

And it is $1 billion now.

And the pipeline of acquisitions, you said that the base and interest of folks that you are speaking with hasn't gone down, it has been fairly steady but could you give us some indication as to the nature, not necessarily the industry, but the rough size of potential acquisitions that you are the closest to?

Well, I think the pine line is shaped, as it often is, by large number of smaller transactions or possible transactions, a healthy but smaller number of, if you will, mid size transactions, $100 million to $200 million to $300 million, and then the, the smallest piece of the pipeline is the Tektronix-type transactions of companies north of $500 million in revenue.

So there's really no change there and I would expect this year to play out more or less the way we have seen over the last several years.

We never plan it that way.

We do a dozen transactions, tends to be one large transaction, two, three, four mid sized transactions, and the rest the smaller bolt ons that provide important technology or distribution access.

Right.

When you are looking at these sort of tightening credit markets out there are you seeing a greater willingness to speak with strategic buyers like yourselves and are the valuation, have you seen any material change in the potential acquisitions expected valuations?

I think Ajit, the tightening credit market is definitely helped a number of conversations.

In terms of valuation, I would say that valuations off trailing numbers are coming in.

They're coming down.

Of course the challenge here is sort of figuring out what the next year or two is going to look like.

But I would say that we have seen an improvement in the sort of value on the valuation side.

Got it.

Thank you.

Thanks, Ajit.

And our next question comes from Steve Tusa with JPMorgan.

Please go ahead.

Hi, good morning.

Morning, Steve.

Tektronix, what was the revenue?

Did that contributed like $350 million, is that right?

It is probably more in the tune of $300 million.

$200 million to $300 million.

So what was the -- ?

$300.

More to the tune of 300.

300.

So the profit contribution from that?

Well, on a segment basis, on a business unit basis, we said high teens.

Now again we have got the noncash charges, we have got a fair amount of amortization on that as well.

Okay.

So is there a seasonality to that business or anything like that or -- because that seems like a pretty high margin.

Well, that's what we are working towards and we -- .

There was some benefit given that May was their year-end, but the margin we generated in Q2 was better than Q1 but not meaningfully better.

So I think we have got pretty good traction there.

Okay, so that is the bottom-line.

I appreciate it.

Thanks.

You bet, Steve, thank you.

And due to time restraints our final question comes from Mr.

Nigel Coe with Deutsche Bank.

Please go ahead.

Thanks, good morning.

Good morning, Nigel.

So I missed this, you already said this, but restructuring, obviously you have taken some expense in the last three quarters, anything in the second half of the year within guidance.

Yes, we currently have a comparable to slightly lower amount planned right now for the third quarter and we are all looking at other activity both for Q3 and the fourth quarter.

Okay.

And is that within industrial again?

That's in industrial.

It is also some in Professional Instrumentation, part of that is Fluke Network.

Great.

Secondly, on free cash, I think you have said in the past roughly $5.00 per share of free cash.

You had a great quarter of free cash flow last quarter.

Does that increase or do we get a bit of pull back in the second half of the year?

Obviously very good quarter.

We did benefit a little bit from the timing of tax payments.

But the number you quoted would work out to a little bit under $1.7 billion, I think the street numbers we have seen are $1.5 billion to $1.7 billion.

I think we are, based on what we know, comfortable with the high end of that.

Right.

And then finally on the tax rate, it is coming in a little bit lower in the second half of the year.

It looks like that's a mix of profits overseas with U.S..

Is that right and if so, what do you think is sustainable at that account leal?

Well, I think, given current tax laws it is sustainable, though we are feeling the changing tax laws in different jurisdictions, but right now we are comfortable with it.

Right.

Maybe just one more, obviously you have done a great job with the Tektronix's margins.

Have you started to attack the R&D base of that business yet because obviously R&D is in the teens.

Is that to come?

Well, I would use different language there, Nigel.

I think that the R&D group there is exceptionally talented.

We want to make sure that we have those folks working on the right programs and driving that sort of shift in focus and accelerating the impact they can have on the top-line is really where a lot of our energies are right now.

I think that the changes you have heard us reference out there have impacted all functions, not only some of the back office operations but really across the board.

But we are trying to be smart about it because that engineering group is really the heart and soul of what has made Tek strong and we want to build on that strength as we go forward.

Sure, thanks a lot.

Thank, Nigel.

Thank you, Nigel.

Ladies and gentlemen, that does conclude today's question-and-answer session.

I would like to turn the conference back over to Mr.

Andy Wilson.

Thanks, Nikki.

Just as a reminder for those that joined late, the replay number for today's call is 888-203-1112 in the U.S.

and 719-457-0820 internationally, confirmation code 4979941.

Thanks for joining us today.

If you have further questions, Dan and I are available all afternoon.

Thanks.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.

You may now disconnect.