Danaher Corp (DHR) 2008 Q4 法說會逐字稿

Good morning.

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

At this time I'd like to welcome everyone to the Danaher Corporation fourth 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).

Please limit yourself to one question and one follow-up question.

Thank you.

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

Andy Wilson, Vice President of Investor Relations.

Mr.

Wilson, you may begin your conference.

Good morning everyone.

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, the slide presentation supplementing today's call, and the reconciling and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call, are all available in the investor section of our website, Danaher.com, under the heading earnings and they will remain there following the call.

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

In addition we've included data in the release reflecting our business segments as well as supplemental income statement data to facilitate your analysis.

Also the audio portion of the call will be archived on the investor section of our website later today under the heading Web Events, and will remain archived until our next quarterly call.

A replay of the call will also be available until January 30.

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

and 719-457-0820 internationally with a confirmation code of 498-6181.

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

During the presentation we'll describe certain of the more significant factors that impacted year-over-year performance.

Please refer to the accompanying slide presentation, our earnings release and other related presentation materials supplementing today's call for additional factors that impacted year-over-year performance.

Also, all references in this presentation to earnings, revenues and other Company 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 2007, included in our 2008 earnings are certain non-cash charges relate to the Tektronix acquisition for fair value adjustments to recorded inventory and deferred revenue, which reduced total net earnings by approximately $5 million or $0.01 per diluted share in the fourth quarter and approximately $44.5 million or $0.13 per diluted share for all of 2008.

These are included in our reported results for the fourth quarter and full year 2008.

Throughout the call all references to the non-cash acquisition related charges for Tektronix relate to these items.

In addition in 2007, charges for purchased in process research and development as well as fair value adjustments to acquired inventory and deferred revenue related to the Tektronix acquisition reduced earnings in the fourth quarter and full year by approximately $66 million or $0.20 per diluted share.

I'd also like to note that we will be making forward-looking statements during the call including statements regarding events or developments 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 we might make today, and these forward-looking statements speak only as of the date they are made and we do not assume any obligation or intend to update any forward-looking statements.

With that I'd like to turn the call over to Larry.

Thanks, Andy.

Good morning, everyone.

Today we reported fourth quarter earnings per diluted share of $0.92 representing a 5% decrease from last year.

Included in fourth quarter earnings were pre-tax charges of $82 million or approximately $0.18 per diluted share related to restructuring activity previously announced during the quarter as well as $0.01 per diluted share related to the non-cash acquisition charges for Tektronix.

Adjusted earnings per diluted share for the fourth quarter were $1.11, essentially flat compared to last year.

We deployed approximately $82 million toward restructuring initiatives during the quarter, of which approximately 60% related to SG&A activities and the remaining 40% impacted cost of goods sold.

These actions resulted in the elimination of more than 1800 positions and the closure of 13 facilities globally, and are expected to generate in excess of $100 million of savings in 2009.

For the full year, earnings per diluted share were $3.95 which also reflect the $0.18 of restructuring charges and include the impact of non-cash acquisition related charges for Tektronix.

Adjusted earnings per diluted share for the full year 2008 were $4.23, an increase of 10.5% compared to 2007.

Revenues for the quarter increased roughly 1% year-over-year to $3.2 billion, with core revenues down 1%, acquisitions contributing 6%, and a negative currency effect of 4%.

Continued growth in our environmental, acute care diagnostics and life sciences businesses was offset by softening demand in certain segments of the portfolio including KaVo, Fluke Networks, product identification and tools.

Our full year 2008 revenues were up 15% year-over-year to a record $12.7 billion, with core revenues growing 2.5%.

Year-over-year, gross margin for the fourth quarter decreased approximately 50 basis points to 45.7%, primarily due to the restructuring charges.

Gross margin for the full year increased 110 basis points to 46.8%, due to the impact of higher gross margins in recently acquired businesses, primarily Tektronix, leverage from higher sales volumes in the first three quarters of the year, as well as the positive impact of cost savings initiatives, which more than offset fourth quarter restructuring charges.

SG&A expenses were 27.1% of sales compared to 24.5% a year ago, due primarily to fourth quarter restructuring charges, incremental investment and emerging market sales resources and higher SG&A levels in our newer businesses.

For the full year, SG&A expenses as a percent of sales increased 170 basis points to 26.3%, primarily due to these same factors.

For the quarter, Research and Development spending as a percentage of sales decreased 160 basis points to 5.3% due to the writedown of in process R & D or IPR&D in the fourth quarter of last year related to the acquisition of Tektronix.

Absent this prior year charge, adjusted Research and Development spending as a percentage of sales increased 30 basis points as we continue to invest for the future.

Operating profit for the quarter was $424 million, representing a 9% decrease over last year, which includes the approximately $82 million of restructuring charges.

Adjusted operating profit for the fourth quarter decreased 4%.

For the full year, operating profit was $1.9 billion, a 7.5% increase over the same period a year ago.

Adjusted operating profit increased 12%.

Our operating margin in the fourth quarter was 13.3%, a 150 basis points decrease from 2007.

Restructuring actions and related charges partially offset by the Tektronix, IPR&D charges in 2007, accounted for the majority of this change.

Core operating margin in the fourth quarter was essentially flat compared to the prior year despite a modest decline in core growth and the increase in R & D.

For the full year, our operating margin was 14.7%, a 110 basis point decrease from 2007.

Restructuring actions and related charges negatively impacted full year margin by approximately 65 basis points.

Core operating margin was essentially flat compared to 2007.

Our effective income tax rate for the fourth quarter was 24% as compared to 26.3% in the prior year period.

Our fourth quarter tax rate includes the benefit of the research and experimentation credit which was extended as a result of the emergency economic stabilization act.

Net earnings were $306 million for the quarter, a decrease of 4.5% compared to the prior year, primarily resulting from restructuring charges, softer revenues and a negative impact of currency fluctuations.

For the full year, net earnings were $1.3 billion, an increase of 8.5% over last year.

Adjusted net earnings for the fourth quarter were essentially flat compared to last year, and were up approximately 13% for the full year.

Despite the difficult macroeconomy, we continued to generate record operating cash flow in 2008.

Operating cash flow increased 9.5% to $1.9 billion for the full year.

Our free cash flow was $1.65 billion, an 8.5% increase over 2007.

Our free cash flow to net income conversion ratio was 126%, making 2008 the 17th consecutive year in which our free cash flow has exceeded our net income.

The Danaher business system is the driver behind this significant and sustained cash flow performance.

During the fourth quarter, we purchased approximately 1.4 million shares of company stock at an average price of just under $54.

There are currently 2 million additional shares remaining under the existing authorization.

Our ability to generate free cash flow during these challenging economic times has also allowed us to continue to strengthen our portfolio by way of strategic acquisitions.

During the quarter, we made six acquisitions comprising about $85 million of annualized revenue to strengthen our environmental, test and measurement and life sciences businesses.

For the full year, we completed a total of 17 acquisitions, representing approximately $325 million of annualized revenue.

We believe the acquisition environment is becoming more attractive, and that we are well positioned to capitalize on strategic acquisition opportunities.

We remain in excellent financial shape, in addition to the acquisitions I just mentioned and the share buyback, we deployed our robust free cash flow towards reducing our outstanding net debt position by more than $1.2 billion during 2008.

Our debt to total capital ratio at the end of the year was 21%.

Let's turn now to some of the highlights from the operating segments.

Professional instrumentation revenues increased 13.5% for the quarter with core revenues up 2.5%.

For the full year, revenues were up 37.5%, with core revenues contributing 4%.

Operating margin for the fourth quarter was 17.8%, compared to 16% last year driven primarily by core margin improvements of 130 basis points.

For the full year, operating margin decreased 140 basis points to 18.7% when compared to 2007, due primarily to the impact of new acquisitions, principally Tektronix and the impact of restructuring actions and related charges.

Environmental platform revenues grew 7.5% in the quarter and 15.5% for the full year, with core revenues up 6.5% in both periods.

Water Quality core revenues grew at a high single digit rate in the fourth quarter as our Hach-Lange business continued to see solid demand across all major geographies.

The team once again delivered a stellar performance in China, where our revenues were up by more than 20% in the quarter.

Sales of our ultra pure analytical solutions grew at a midteens rate in the quarter, the result of continued strength from new product sales including our new TOC or Total Organic Carbon analyzer utilized in pharmaceutical applications.

ChemTreat's revenues grew at a mid single digit rate in the quarter and continued investment in ChemTreat's best-in-class service sales organization continued to drive share gains.

Trojan's revenues grew at a midteens rate in the quarter, with broad based strength across most major geographies and applications.

In China, Trojan was voted the number one disinfection brand for the second year in a row by a leading trade group.

Trojan is entering 2009 with another record backlog.

During the quarter we completed four acquisitions in Water Quality, the largest of which was Sea-Bird Electronics, with approximately $25 million of annualized revenues, Sea-Bird Electronics provides conductivity, temperature and depth instrumentation and provides calibration services used by research institutions and government agencies to help explore, and research the relationship between ocean, dynamics and climate change.

Sea-Bird more than doubles the size of Hach's hydromet business.

Gilbarco Veeder-Root's core revenues grew at a mid single digit rate in the quarter, due in part to increased sales of payment and point-of-sale systems, particularly in the U.S..

In October, Veeder-Root received regulatory approval from the California Air Resources Board, or CARB for its enhanced vapor recovery solution.

Following this approval, Veeder-Root shipped more than 1100 vapor recovery solutions to retailers, contributing to their midteens growth in the fourth quarter.

Moving to test and measurement, revenues were up 20.5% in the quarter with core revenues down 3.5%.

For the full year, revenues grew 70.5%, with core revenues coming in flat.

Fluke core revenues decreased at a low single digit rate in the fourth quarter as robust demand for thermography products was offset by reduced sales of more traditional industrial products.

Inventory distribution also negatively impacted the quarter as did currency exchange rate volatility in emerging markets particularly in Eastern Europe and in Mexico.

During the quarter we completed the acquisition of Hawk IR, a manufacturer of infrared panel site glasses and ports used in many of Fluke's thermography products.

Fluke Networks sales decreased at a midteens rate during the quarter, resulting from continued soft telecom demand as well as the effect of slower IT spending.

At Tektronix, revenues declined at a low single digit rate in the quarter.

At Tek Communications, our network management business grew at a high single digit rate with a large number of new carriers added during the fourth quarter.

Tek is entering 2009 with the leading share position in network management solutions and the highest backlog levels the business has ever experienced.

In instruments, sales of oscilloscopes declined at a high single digit rate, primarily a result of softening market conditions and distributer partners working to reduce their inventories.

In November, we marked the one year anniversary of the Tektronix acquisition.

Looking back over the past year, we are very pleased with the progress we've made on all fronts at Tek.

The Tek team has embraced DBS, and as a result, we are now working a growth plan which should help us long term drive sustained growth.

We remain committed to investing in innovation while at the same time actively managing our bottom line.

We far surpassed our one year cost reduction objectives and improved operating margin by more than 400 basis points.

Despite the challenges we face on the top line in the near term, we continue to believe that Tektronix represents a compelling, strategic acquisition to Danaher that will deliver excellent returns to our shareholders.

Moving over to Med Tech, revenues for the quarter decreased 2.5% compared to 2007 with core revenues essentially flat.

For the full year, revenues were up 9.5% with core revenues up 4.5%.

Med Tech operating margin for the quarter, fourth quarter was 10.7% compared to 15.3% a year ago due largely to restructuring actions and related charges as well as the impact of newly acquired businesses.

Core operating margin declined 80 basis points in the quarter, primarily due to lower volumes in our cable business.

Full year operating margin declined 180 basis points to 11.3% compared to the prior year, primarily results of these same factors.

Starting with dental, Sybron grew to mid single digit rate in the quarter, lead by strong sales of endo twisted file and total care disinfection products as well as continuing demand for our general dentistry consumables at Kerr.

Sales of our traditional orthodontia products declined in the quarter, as many patients postponed orthodontic procedures due to the general economic situation.

Cable revenues declined at a midteens rate in the quarter with a general slowdown across all major geographies and product categories.

The economic downturn has significantly impacted sales on new dental equipment with many dentists delaying new investments in their practices.

Notwithstanding this tough environment, we experienced robust sales growth for the Gen Deck CB500, our new medium 3D imaging unit, which we launched in Europe in the Fourth Quarter.

For the quarter, core revenues were all down declining at a mid single digit rate.

Like the core revenues -- excuse me, at a high single digit rate in the quarter, driven by 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 solid demand both in Asia and in North America.

In 2008, Leica's revenue surpassed the $1 billion mark, more than double its revenue when we acquired the business in 2005.

We are extremely pleased with this achievement and with the continued success of the Leica team.

During the quarter, we acquired SurgiPath Medical Industries with annual revenues of approximately $40 million, SurgiPath is a manufacturer of consumables and stains used in pathology laboratories.

The acquisition broadens like Leica Biosystems core histology offerings and furthers its objectives towards becoming the leading provider of complete solutions for pathology labs.

Radiometers core revenues grew at a mid single digit rate for the quarter, driven by strong consumable sales.

Instrument sales were also healthy, growing at a mid single digit rate due to part in shipments of our new compact ABL80 analyzer, which was launched during the quarter.

Sales of AQT in Europe are progressing well with more than 100 units currently in the field.

Moving to industrial technology, revenues declined 4.5% in the quarter with core revenues essentially flat.

For the full year, revenues increased 3.5% with core revenues contributing 1.5%.

Our operating margin in the fourth quarter was 13.7%, a 260 basis point decrease compared to the same period last year, due primarily to restructuring actions undertaken in the quarter.

The core operating margin improved 80 basis points in the quarter.

Full year operating margin decreased 90 basis points to 16%, due primarily to our restructuring activities.

Product identification core revenues were down 8% in the quarter and 3.5% for the full year.

Continued growth of consumables, sales and service in our install base was more than offset by slowing sales of new equipment as many customers delayed making purchases.

Despite the challenges faced in the broader equipment market, we've been very pleased with the early results of Video Jet's new 1000 series family of small character Inkjet printers.

These printers provide customers with industry leading uptime and a more predictable maintenance schedule.

These products address a wide variety of coating applications in such verticals as food, beverage and Pharmaceuticals.

Since launching the high performance CIJ-1510 in the third quarter, we've seen strong demand with December being our highest shipment month thus far.

And during the fourth quarter we launched the lower price point CIJ 1210 which is ideal for lower volume printing needs.

In motion, revenues were down 3.5% in the quarter with core revenues contributing a 1% offset by the negative impact of currency fluctuation.

Our aerospace and defense, elevator and flat-panel display businesses benefited from backlog reductions during the quarter, but were mostly offset by soft demand in the U.S.

and Europe for standard motor and drive products and in factory automation as a result of widespread capital spending reductions.

Due to the weakening of many of the major end markets we serve here, we are not forecasting this level of sales performance in 2009.

The full year, motion sales increased 4% with core revenues up 1% with net positive currency effects.

Finally moving to tools and components, revenues for the quarter decreased 15% with core revenues down 14.5%.

For the full year, core revenues decreased 3.5%.

Our operating margin for the quarter was 9.8%, a decrease of approximately 200 basis points from the prior year, largely due to increased commodity costs, primarily steel, and the impact of lower production levels as well as restructuring actions and related charges.

These negative factors were partially offset by insurance recoveries collected in the quarter related to a plant fire that occurred in 2007.

In 2009, we expect some relief from these higher commodity cost levels as we consume the majority of inventory purchased in 2008 at these record price levels.

Full year operating margin decreased 90 basis points to 12.2% due principally to these same factors.

Mechanics and tools core revenues declined 14.5% in the fourth quarter primarily due to lower sales to both consumer and professional channels.

During the quarter we began shipping the general mechanics toolkit for the U.S.

government.

This is a contract that is expected to generate over $100 million of new revenue over the next five years.

For the full year, mechanics hand tools core revenues declined 6%.

So to wrap up, despite an unprecedented global economic slowdown, we are pleased with the progress we've made over the last year.

We enter 2009 with a stronger balance sheet, having reduced our outstanding net debt by over $1.2 billion.

We completed 17 acquisitions in 2008 strengthening our Med Tech, Test and Measurement Services and water businesses.

Our restructuring investments that began in 2007 and which accelerated in the fourth quarter of 2008 and our talented team, many of whom were a part of the Company in the last downturn, had contributed to the solid results we delivered in the year and give us the ability to out perform in what we believe will be a challenging 2009.

With this outlook, we expect earnings per share in the first quarter 2009 to be in the range of $0.70 to $0.80 and we are reconfirming our full year 2009 earnings per share guidance of $3.70 to $4.10.

Thank you, Larry.

That concludes our formal comments.

Trisha, we're now ready to take questions.

Thank you.

(Operator Instructions).

We do remind everyone to please ask one question and one follow-up question to give everybody a chance to ask a question.

We'll go to Nicole Parent with Credit Suisse.

Good morning.

Good morning, Nicole.

So you gave us some sense of Motion trends and what you're thinking for 2009 versus the fourth quarter and full year '08.

How should we think about some of the other sub segments in terms of core growth relative to what we've been seeing and maybe could you give us a sense of margin performance as well?

Within Motion, Nicole or more broadly?

Sorry, more broadly.

You gave a sense in your comments of what that Motion was going to be below the current trend levels.

Yeah, well I think that as we reconfirm the full year guidance, Nicole, we're probably not of a much different mind set than we were when we saw you in December.

I think the core outlook for 2009 is still going to be in that down to down six range for Danaher with the first quarter representing a very challenging start the first half likely to be tougher than the second half.

I think if we just, if you look at the full year for a moment, if you just take the mid point of that down two, down six, what we would anticipate is that the defensive businesses, the businesses that clearly demonstrated already in the fourth quarter here, the resilience, they should be called flat to slightly positive obviously water, dental consumables, Sybron, Radiometer and Leica and there you're talking obviously about $4 billion of our $12 billion in revenue.

I think the businesses that we would expect to be down call it low to mid single digits, Fluke, Gilbarco Veeder-Root possibly, KaVo, Product ID, and certainly tools and then the businesses are going to be down mid single maybe a little bit more, FNet, Tek, and the Company mentioned in your question, Motion, given what we know and given what we don't know right now.

Thanks, that's very helpful.

Nicole, from a margin perspective if we're down in that core being negative four, we would expect core margins to be down slightly year on year, call that 25, 50 basis points.

Okay and then within the Test and Measurement Services sub segment, could you give us a sense of the end market strength and weakness that you're seeing like you did in Motion?

Sure.

I think what we're seeing is on balance at Fluke, general softness and as you know, we've got a very hot product lineup in thermography, it's a new application across a number of verticals but as we look at the general industrial, electrical and electronic markets that we serve there, customers have pulled back, channel partners are taking a cautious position in inventories as we both ended the year and have started the year.

I think at FNet, we've certainly seen both kind of the core telecom business there and more importantly just general IT spending get pushed out and get deferred which is why they were down so much and why we think they could have a very tough '09.

At Tek, we really have two different dynamics going on.

As we mentioned in the prepared remarks, Nicole, very good performance in our network Management business.

We think that's a market space that has held up well.

We believe we're taking share, just as the team they're doing a very good job.

In the general purpose, instrumentation where we have about two-thirds of that business, clearly a global slowdown that was pronounced in the fourth quarter which again is why we VI think the sober outlook for that business we do here in 09.

Great.

Thank you.

Thank you, Nicole.

We'll take our next question from Jeff Sprague with Citi Investment Research.

Thanks, good morning.

Good morning, Jeff.

Just a couple things.

First on restructuring, minor nuance but I think you actually spent a little bit less than you were indicating.

Any thoughts on just that and the ability to find more to do?

Jeff, we spent approximately $82 million in the quarter, I think when we were together in New York we thought we would be somewhere in the $90 million range.

I think the other interesting data point there is we I think talked about 1700 positions being eliminated as part of that.

We actually got more positions out in the quarter.

We ended up with about 1800, so I think that probably the best way to characterize it is we were perhaps planned a tad conservatively and the businesses on balance and they executed well.

We also, I think stand by what we said in December relative to the committment to do more in '09.

We set aside I believe in our role for 40 to $60 million of additional restructuring spending this year.

That of course is embedded in the guidance that we've offered up and I see no reason for us to pull back from that level of expectation given the uncertainties that are out there.

And just on the M & A that's done in the pipeline, Dan, what type of revenue impact are we looking at, just what you have in hand?

A point or two or not even that much now that we've left Tek?

Well, we added about $300 million annualized and probably if you took half of that, so it's probably about a point and a half benefit going into '09.

And then just finally, on dental, Larry, I missed what you said on Sybron.

Could you just repeat that and give us a little additional color on how weak ortho was and just the trends you're seeing among some of the more discretionary items?

Sure.

Well I think that of the major pieces at Sybron, the ortho piece is probably the most discretionary but hopefully people will still invest in their children's oral health but as we look at that business, we were down modestly in the quarter but had some very nice offsets.

We mentioned in the prepared remarks what we are doing in the endo field on a number of new products there I think helping us drive share, our disinfection business given all concerns in that space generally both in dental and in medical, had a very good quarter, some of the other smaller businesses that Sybron did as well so I think on balance we're pretty pleased with the performance that occurred, certainly in the general consumables business, saw some slowing but it was not nearly as pronounced given that many people look at those general products if you will more in the pain Management category, far less the discretionary item than something like orthodontia or implants.

Sorry, just to be clear,ortho was down modestly or the whole Sybron franchise was down modestly?

Ortho.

Jeff, Sybron was up mid single digit in the quarter.

I missed that in the opening remarks.

Thank you.

We'll take our next question from Bob Cornell from Barclays Capital.

Thanks, good morning everybody.

Good morning Bob.

I want to go back and flush out the sequence of the fourth quarter.

Remember we talked about October is up a little bit and November was flat and December started out so weak you guys understood the quarter to be negative but came out negative just 1%.

I was wondering if December finished a little better than it started and maybe you could give us an idea of how January started.

Well you're right, Bob.

We did a little bit better than we thought relative to core in the quarter.

I think that when we entered December like most companies, we had no idea people were going to head home for the holidays, but things were not anything to brag about.

We did a little bit better than we had anticipated so we were pleased with that.

I do want to note though as we mentioned a couple of times already, we were working down backlog in a number of areas.

We certainly saw orders weaken through the course of the quarter and I think that in large part is why we've offered up the type of framework we're thinking about '09 that we have.

I think thus far, while it's early, things haven't been horrible but again, I wouldn't say they've been anything to brag about.

I think by and large, they have been in line with what we would have, what we were thinking and what we were discussing in mid December.

The other thing, a lot of companies talk about destocking as well as end market issues and are you able to gauge what destocking effect you're seeing as a depressant on your organic growth?

It's hard to quantify that, Bob, on a pan Danaher basis but we certainly saw in a number of our businesses that go to market through distribution where our sales out the door were softer than the sell-through at the counter, at retail as a result of those inventory reductions.

Definitely happened across a number of our businesses and I would offer up that I don't believe that that has settled out yet.

You mentioned what were orders up or down in the fourth quarter if you referenced those I don't remember hearing what you said.

Bob, they were down about two or three points more than the negative 1 on the shipments.

Final question for me is what's going on with pricing and are you starting to see customers come back at you with lower commodity costs in the headlines and put pricing on you and how are you matching the price issues versus the commodity declines?

Well, we certainly are seeing isolated examples where that's surfacing in our conversations with customers and conversations with businesses.

I would suspect that will be an increased topic of discussion as we go out through the your, just as we are with our vendor base, given what's happening in a number of the commodity markets and obviously with the economy act at large but I think we continue to believe, Bob, as we think about '09 that we can get some positive price and get more than our fair share of the reductions in the decrease in commodity prices broadly across the portfolio.

So I think that net-net will be a positive for Danaher, those two elements in 2009.

Okay, thanks.

That's all for me, thank you.

Thanks Bob.

We'll go next to John Inch with Banc of America, Merrill Lynch.

Thank you, good morning.

Good morning, John.

Hi, guys.

So just to pick up on that last point and to dove tail with what you said about tools and rods, what sort of, assume raw material costs now that you've anniversaried sort of the higher input costs, assume that raw material costs sort of stay where they are today, Larry or Dan, what kind of a profit benefit does that give the tool segment in 2009?

Well, John, across the Company, at current levels it could be kind of 20-30 basis point benefit to margins.

Within tools, that would be the lions share of it so it would probably be North of 100 basis points of benefit.

I think the offset here is continued challenge if you're in the top line.

And I mean do you have to give some of that back in terms of price?

When Larry's describing that price is going to be up, is that disproportionately weighted towards some segments and then tools you expect price to be down?

How should we think about that?

I think we got about two points of price in the fourth quarter.

That will prove more challenge and we think it will be positive here in '09.

The areas where I think price will be sticky will be our consumable businesses across Product ID, Med Tech and it will be more challenging clearly to give price and tools though right now we're not looking to give up price.

I'm sorry, Dan was tools down in price in the Fourth Quarter?

No.

We had positive price in tools as well.

Lastly, just emerging markets.

You guys are a big Company in China.

What are you seeing there?

I understand you're probably outperforming but could you give us a little bit more color in what you're seeing in end markets specifically China and you read about the economy in India is taking a real hit?

Just how about a little bit of an update in terms of what's going on in these important economies?

Sure.

I think with respect to China, John, we certainly saw solid performance across the portfolio really up until early November and I think since then China has softened significantly.

We mentioned in the prepared remarks, Eastern Europe and Mexico, under parts of South America have been wrestling with the currency issues as well.

Some of that has stabilized but by and large, the turmoil that you read about is certainly marked in what we saw toward the end of the year.

It's been reduced a bit in those places, and included here at the beginning of the year but I think we still have a cautious view about what we can expect from those geographies in '09.

Worse than what you thought before, Larry or does it ultimately not that significant?

I think the currency noise just added to all of the underlying macro weakness in December, John, as you saw those currencies fluctuate as they did, so I think on the margin we're probably more cautious about emerging markets in '09 but I think in general as you heard us in December, we're trying to go in here real sober about the environment that we're wrestling with this year.

Understood.

Thank you.

Thanks, John.

Thank you, John.

We'll take our next question from Steve Tusa with JPMorgan.

Hi, good morning.

Good morning, Steve.

On the working capital front, you guys did a good job on the inventories and receivables.

Can you just talk about the dynamics there and was there anything unusual, I think receivables are particularly strong benefit.

Well, the little bit of a softer top line can help a little bit but if you look at the last couple of years we've been able to generate pretty good cash flow out of working capital so for the full year had about $100 million of working capital contributing to cash flow, I think that's something we strive for every year.

Okay, and then also, the bad debt reserve was up about $10 million on a flat receivables basis.

Anything specific going on there or is that just mix from Tektronix?

It's a couple things.

It's a little bit from the new acquisitions coming in adding some revenues but it's also a function of the environment putting a little bit more provision on the balance sheet to recognize the more difficult times.

Okay, and then one more thing on M & A environment.

Any kind of high level comments there?

Is there anything that's changed?

Have the sellers expectations come down or are they all still sitting out there thinking these valuations are actually low?

Well, I think everybody is a little different, Steve, but I think we view '09 as a year in which we should have plenty of opportunity to make good, smart investments to buildout our portfolio, and we know that in both public and private situations, the havoc this economy is laying in will create situations where valuations will come in, companies may lose some of these strategic options they once had and then I think will make a conversation with Danaher attractive and certainly that will be attractive to us as well, so we're optimistic that we're going to be putting some capital to work this year to buildout Danaher for the future.

Great.

Thanks.

Thanks, Steve.

We'll take our next question from Ajit Pai with Thomas Weisel Partners.

Yeah, good morning.

Good morning, Ajit.

The first question is just about Western Europe.

I think you talked about Eastern Europe and China being sort of weakening to the end of the year.

Could you give some color as to linearity in Western Europe and your expectations going into the first half of this year?

I think that we saw Western Europe not unlike the U.S.

soften through the quarter.

We actually, we were just slightly positive in Europe in the quarter but very much would expect Europe, not unlike the U.S.

to come in I think in '09 or at least Danaher in that context to come in in that down two, down six range.

I don't think we're expecting a wildly different '09 in Europe, Western Europe than we are elsewhere.

And then the second question is just about China.

If you have the numbers handy could you give us what percentage of revenue they formed in the 2008 growth that we saw and then I think you talked about things being weaker over there this year.

What kind of growth rate are you folks internally planning or expecting out of China?

I'm not sure I understood the first part of the question?

With the percentage of the overall revenues how material is China?

It's about 8%.

And then the growth rate that the business experienced in 08 and what you'd expect that to be growing, your Chinese business, sales in China and what you'd expect that to be in 2009?

The first three quarters were probably up approximately low double digits.

For the fourth quarter, China was flat year on year.

I think the expectation is for the full Company, Larry mentioned being down 2 to 6%, I think China could be in that range maybe a little bit better but we're not expecting a lot of growth in any geography in '09 right now.

Got it.

And then last question would just be looking at your share buyback.

I think you talked about varieties of cash.

Could you walk us through right now about how you're looking at share buybacks and what point you'd be more aggressive there?

Well we did buyback about 1.4 million shares in the Fourth Quarter.

We do, as you know in our history, find periods of time where we think it's both a very attractive opportunity and an opportunity to take some stock out of the system but given our significant debt reduction in '08, given the strong cash flow, we expect in 09, I would expect that the lion's share of that liquidity goes toward building out the portfolio, though there's always a potential element for a small portion of buybacks.

Got it.

Thank you so much.

Thank you, Ajit.

Thank you.

We'll go to Scott Davis with Morgan Stanley.

Hi, good morning.

Good morning, Scott.

Most of my questions are answered but I did want to dig into a little bit of the M & A side and the question is where's the sweet spot now where deal multiples are coming down and there's a reality among the seller that not only the multiples have to come down but the denominator also has to come down as far as what's perceived as mid cycle earnings.

Is there a certain sweet spot or do you have to go to larger or a lot more smaller deals?

What do you think there?

Scott, I'm not sure I could give you a good generalization there.

I think the market has really been down here for two quarters.

I think that helps.

I would say that people are more nervous out there and again that makes it more challenging for all of us here on the call but I think that bodes well for the environment where you have companies, public and private both showing bad numbers but also forecasting tougher numbers as well, and I think that tends to be where you begin to see a more rational seller so I'm not sure we're quite there yet, but I think it's coming.

Okay, and on restructuring, which segments do you feel like you still have some wood to chop to get capacity down to match up with the demand outlook?

Scott I'd give you just kind of a simple answer here and share with you that I think all of the businesses still have opportunity, so we talk about somewhere in the $50 million range, being set aside in '09, I would anticipate that that will be broadly distributed across the portfolio.

Okay.

Great.

Thanks, guys.

Thank you.

We'll take our next question from Nigel Coe with Deutsche Bank.

Thanks, good morning.

Good morning.

Just on the acquisition question, I mean from where you sit now, do you think you'll do anything confirmation all this year or more kind of bolt on in nature?

I think like a lot of things in '09, Nigel, it's a little hard to say given what may come but I think that the general approach that we've used in the past is likely to be the one that you see play out this year.

We put capital to work.

We're going to be focused on the bolt ons that you saw us do in '08, but I suspect the larger deals, be it $500 million, be it $1 billion, will be a larger part of what we do in '09 than they were last year because I think those are the situations that Dan was referencing a moment ago that will be good additions for us.

I think that as we go through the year, clearly the focus will be on adding to the environmental, the Med Tech, the T& M, the product ID segments.

Could there be another platform flag out there planted in '09?

It's possible, but I think there's so much going on just in those four businesses where we do about 8 of our $12 billion in revenue but that 8 is against the market back drop of about 50 billion, so I suspect we'll stay close to home.

The transformational situation, those are always unlikely but if they are going to happen, they may be more likely to happen in a tumultuous environment like this, but I suspect most of the capital if not all will be spent close to home.

Great, that's good color and a couple quick ones here.

On the consumables, I was a little bit surprised to see that growing in the mid single digits given that IP is down maybe 5% in both U.S.

and Europe.

Do you think that continues to grow into '09 or it will weaken as we go through?

Well, I think the reference was to the consumables business at Sybron.

No, no, sorry, this is at Video Jet.

Oh, I'm sorry.

I'm sorry.

I think that's one we're going to watch very closely.

We thought that part of the product ID portfolio was more resilient.

I think it's demonstrated as much but it is one that we're going to watch.

Keep in mind that a lot of the verticals that we serve there are going to be a little bit more stable than IP just broadly defined, food, that and the like.

But it's a fair question.

Sure.

Okay and then finally on FX, there's a little bit less of a head wind from FX this quarter expected.

The Japanese Yen has been pretty strong and you do have a bit more exposure to Japan.

Is that going to be a slight effect for you in 09 do you think?

It is but it pales in comparison to the impact of the Euro so what we said in December with it being about an impact of $0.05, $0.06 in the first quarter, it may be more like $0.05 now but it's pretty small.

Great.

Thanks.

Thank you, Nigel.

We'll go next to Wendy Caplan with Wachovia.

Thanks, good morning.

Good morning, Wendy.

You mentioned, Larry in your prepared remarks that you'd gained some share at Tek.

Can you talk about your strategy, your market share gain strategy in these tough times?

Is it strictly new products or geographies or markets or does it say something about your willingness to address pricing share?

Well, as Dan referenced, Wendy, we certainly don't want to display the price card in any environment.

We did a nice job in that regard in '08, getting price, and I think getting share in a lot of places.

I think what we want to do in an environment like this is make sure we continue to stay focused first and foremost on the customer.

When you're taking a lot of cost out, it's easy to get focused internally, so much of what we're trying to do with our Sales and Marketing team is make sure we still have that external orientation.

Much of what we've implemented around our I2E or idea execution initiative the last several years has been geared towards being a more effective in the marketplace with our salesforce, with our marketing messages and the like and when we're at a point where we are in several businesses where our R & D investments over the last several years are delivering new products, you see that at Tek, you see that at Video Jet, Sybron has a number of nice offerings right now, those two come together and give us the ability to play some offense.

We talked a little bit in New York as well around our dynamic resource allocation approach to funding.

I think the key in this environment is to be tight on cost but not at the expense of the growth drivers in the business.

So we really do all we can to protect the short-term investments around Sales and Marketing, the longer term investments around R & D, and go get the cost out elsewhere.

And maybe a little bit of a long winded answer, I apologize, but I think that's the approach the DBS approach to taking share in '09 that we're going to work in all of our businesses this year.

Okay, thanks.

And finally, do you anticipate any given all the restructuring any meaningful management changes in '09?

No.

We just announced as you saw a few weeks ago a handful of group executive promotions which we were excited about, a number of people who have grown up in the business taking on additional responsibilities and being so recognized, but no.

We've got a heck of a team here and we want to make sure this team stays together and does what we know we can do to outperform in '09.

Thanks very much.

Thanks, Wendy.

Thank you.

Due to time constraints we'll take our last question from Richard Eastman with Robert Baird.

Hi, just good morning Larry, Dan, Andrew.

Good morning.

Just two questions.

One is on the water business, Larry, you bundled that into kind of the Med Tech group in terms of an ability to show growth this year in '09.

Could you just quickly walk through Hach-Lange, Trojan, is the backlog still there, what gives you the confidence there that that business will grow?

Well I think you're right, Rick.

When we talk about perhaps the most resilient parts of the portfolio, we certainly look just to the fourth quarter and we would see Radiometer doing what we thought it would do, certainly Leica, as well, Sybron, so we have most the Med Tech.

I think Water has many of those same structural characteristics.

That's held as well and then those businesses are about $4 billion, there's probably another $1 billion of consumables at Video Jet, after market businesses so we have about five of the 12 that you would lump together having that sort of resiliency.

I think as we look at Hach-Lange, whether it's the regulatory issues, whether it's the optimization and efficiency initiatives that many of our customers are pursuing, the emerging market trends, all of that kind of comes together and gives us the view that that business will do better than most of the portfolio in '09, I think with what the President has proposed over the weekend, with respect to wastewater and drinking water funding, if that comes about clearly, both Hach-Lange and Trojan should be well positioned.

Trojan is certainly well positioned from a backlog perspective, we came into '08 with record backlog, we've come here in January with a better level of backlog for'09 so I think we're bullish about that and ChemTreat has continued to holdup well, continues to take share, so a lot of good things going on in the water right now but we all know the type of environment we're dealing with.

There are very few certainties but I think those businesses in part lead by water should lead the way for us this year.

Okay, and then just last, from a macroeconomic, the context and maybe top down, when you look out into '09, are you expecting a recovery in the second half globally or I know we're talking about down 2 to 6% but does it graduate up?

Do we end the year at flat to slightly up?

Does it take that type of macro perspective or are we pretty much assuming the economy stays down and flat?

Rick, I think the framework that we're offering here is really rooted on the comps getting easier for us in the second half at a minimum.

Clearly, we have a lot of government activity around the world trying to stop the hemorrhaging.

At some point that has to take effect and as we mentioned in answering your first question, there are some things within our control, so it's really that framework that we offer up here as a way to think about 2009 but we're going to make sure that we continue to stay tight on cost, given the uncertainties, we'll work to protect our downside so that we can outperform this year come what may.

Very good.

Thank you.

Thanks, Rick.

Thank you, Rick.

Thank you.

That will conclude today's question and answer session.

For closing remarks I'd like to turn the call back over to Mr.

Wilson.

Thanks, Trisha.

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Thank you everybody for joining us.

Have a good day.

Again, thank you everyone for your participation.

This will conclude today's conference call and you may disconnect at any time.