Danaher Corp (DHR) 2012 Q4 法說會逐字稿

Hello, everyone.

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

Good day and welcome to the Danaher Corporation fourth-quarter 2012 earnings results.

Today's conference is being recorded.

All lines are in a listen-only mode.

Following today's presentation, there will be a question-and-answer session.

(Operator Instructions)

At this time I'd like to turn the conference over to Matt McGrew, Vice President of Investor Relations.

Please go ahead, sir.

Good morning, everyone and thanks for joining us.

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

I'd like to point out that our earnings release, a 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, which we refer to as the supplemental materials are all available in the investor section of our website, www.Danaher.com, under the heading financial information and will remain available 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 statements, year-end balance sheet, and year-end cash flow statements.

In addition we have included data in the release reflecting our business segments' results to facilitate your analysis.

The audio portion of this call will be archived in the investor section of our work site later today under the heading investor events and will remain archived until our next quarterly call.

A replay of this call will also be available until February 5, 2013.

The replay is 888-203-1112 in the US and 719-457-0820 internationally and the confirmation code is 2149164.

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

Please refer to the supplemental materials in our annual report on Form 10-K when is filed for additional factors that impacted year-over-year performance.

All references in these remarks and accompanying presentation of earnings, revenues, and other Company-specific financial metrics relate only to the continuing operations of Danaher's business unless otherwise noted.

I'd also like to note that we'll be making some statements during the call that are forward-looking statements within the meaning of the Federal Securities laws including statements regarding events or development 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 fourth in our SEC filings.

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

These forward looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward-looking statements whether as a result of new information, future events and developments, or otherwise.

With that I'll turn the call over to Larry.

Matt, thanks.

Good morning, everyone.

We were pleased by the solid finish to 2012 which was broad-based across most of our businesses.

Core revenues grew 3.5% in the fourth quarter with incremental strength most pronounced in Life Sciences and Diagnostics, Product Identification, and Dental.

Additionally the team's application of the Danaher Business System lead to earnings growth, core margin expansion, and outstanding cash flow performance including a record $3 billion of free cash flow generation in the year.

From a geographic perspective high-growth markets grew low-double digits with particular strength in Latin America and the Middle East.

China delivered high single-digit growth in the fourth quarter again lead by Life Sciences and Diagnostics and Dental.

In the US year-end demand helped drive low-single digit growth in the quarter.

Western Europe was modestly negative.

Of note revenues from the high-growth markets grew to more than 25% of our total revenues in 2012.

While approximately one-third of this revenue is generated in China, we have also built an increasingly large presence in Latin America with more than $750 million of annual sales.

And the Middle East and Africa with about $500 million in sales.

We're proud that we've been able to replicate our success in China in other key growth markets.

High-growth market revenues now surpassed those from Western Europe and our strong base for future growth and serve as a hedge against the uncertain economic outlook in Europe.

In 2012 we strengthened the Danaher portfolio spending $1.8 billion on 14 acquisitions, most notably X-Rite and IRIS.

Over the next two years we have ample balance sheet capacity to deploy on acquisitions with a continued focus on our strategic growth platforms which now account for more than 90% of total revenues.

So with that as a backdrop let me move to the details of the quarter.

Today we reported fourth-quarter diluted net earnings per share of $0.89, representing a record fourth quarter for Danaher and a 12.5% increase as compared to our diluted net EPS last year.

Included in these results is a $0.02 per share benefit from a mark-to-market gain from the chang in value of a currency swap agreement.

For the full-year diluted net EPS increased 16.5% to $3.23, which includes more than $120 million of second-half restructuring.

Revenues for the quarter increased 5.5% to $4.9 billion with core revenues up 3.5%.

Acquisitions increased revenues by 3%, partially offset by the negative impact of FX which decreased revenues by 1%.

Our full-year 2012 revenues were up 13.5% year-over-year to $18.3 billion with core revenues up 2.5%.

Our year-over-year gross margin for the fourth quarter increased 190 basis points to 51.2%, while our operating margin in the fourth quarter increased 80 basis points to 17.3%.

For the full year our gross margin was 51.6% and our operating margin was 17.3%.

If we exclude the impact of the Apex JV, our full-year operating margin was 17%.

DBS continues to be the primary driver of our outstanding cash flow performance.

2012 operating cash flow was $3.5 billion, a 28% increase compared to 2011.

Free cash flow from continuing operations was a record $3 billion and our free cash flow from continuing operations to net income ratio was 132%, representing the 21st year in a row where we delivered free cash flow in excess of net income.

During the quarter we announced the acquisition of five businesses with aggregate annual revenues of approximately $250 million, and which are expected to strengthen our Environmental, Dental, and Life Sciences and Diagnostics segments.

In 2012 we also repurchased approximately 12.5 million shares of Company stock at an average price of about $52 per share.

Turning to our five operating segments, Test and Measurement revenues increased 1% for the quarter with core revenues down 2%.

For the full year revenues declined 0.5% with core revenues down 1.5%.

Test and Measurements reported operating margin was down 280 basis points to 18.7%, due to both core revenue declines and higher year-on-year restructuring spending.

Fluke core revenues decreased at a low-single digit rate in the quarter, marketing an improvement from the double-digit declines we saw earlier in the year.

Bookings turned positive this quarter and we believe this momentum could lead to positive core revenue growth in the first quarter.

Fluke recently launched several new products including the VT02 visual thermometer, an innovative entry price point temperature measurement tool with an integrated visual heat map.

At Tektronix core revenues declined at a high-single digit rate, a modest improvement from the mid-teens decline experienced in the third quarter.

Sales improved sequentially in North America, although demand in Europe, Japan, and China remains weak.

Despite market softness we continue to receive industry recognition for our innovative new technologies.

In the quarter Electronics Design Network named Tek's THS3000 handheld oscilloscope series, Keithley's 2657a high-voltage high power system source meter to their 100 Hot Products of 2012 list.

Core revenues from our communications businesses grew low-single digits in the quarter lead by healthy demand for our enterprise tools and network security solutions in most major geographies.

Accelerated product development via DBS at Fluke Networks yielded nearly 50% product vitality in 2012, with 35 new product introductions during the year.

We believe we are gaining market share as a result of this robust portfolio of fiber, Wi-Fi, and enterprise troubleshooting tools and systems.

Sales at Tek Communications network management solutions declined in the quarter primarily due to different of prior-year comparisons.

We expect this business to return to growth here in the first quarter.

During the fourth quarter, Tek Comms launched its Deep Packet Classification solution that enables operators to protect against revenue drain and identify new opportunities for growth by deepening their understanding of per subscriber network utilization.

Environmental segment revenues increased 5.5% in the quarter with core revenues increasing 3%.

For 2012 revenues increased 4% with core revenues up 3.5%.

The segment core operating margin was up 150 basis points in the quarter with reported operating margin increasing 110 basis points to 23%.

Water quality core revenues increased at a low-single digit rate.

At Hach Lange, sales of our core lab instrumentation used in industrial applications were particularly good due to in part to the recent launch of the DR 3900 spectrophotometer and the HQd benchtop meter.

Hach Lange again drove double-digit growth in Latin America this quarter and exceeded $100 million in revenue throughout the region for the full year.

ChemTreat continued its growth streak with the fourth quarter marking its tenth straight quarter of double digit core revenue growth.

In 2012 revenues eclipsing $350 million, up from just over $200 million when we acquired the company in 2007.

Gilbarco Veeder-Root's fourth-quarter core revenues grew mid-single digits, lead by healthy dispenser sales in North America.

In Mexico we believe we are capturing significant market share, shipping nearly 5,000 dispensers to that country in 2012 to help customers comply with recent regulatory changes.

During the quarter Gilbarco announced the pending acquisition of Automated Fuel Systems Group, a leading provider of fuel management solutions to government, fleet, and mining customers in South Africa.

The acquisition is subject to customary closing conditions and is expected to close in the first quarter.

We also announced the acquisition of Navman Wireless, Danaher's first acquisition in the attractive fleet and asset management adjacency.

Navman solutions enable fleet owners and operators to track and monitor their assets real-time, achieve savings on fuel and maintenance, and manage operator workflows.

Customers here include local business fleets, off-road users in construction and mining, schools and municipalities, and long-haul transporters.

Moving to Life Sciences and Diagnostics revenues for the quarter increased 6.5%.

Core revenues were up 7% in the quarter and for the full year revenues increased 40% with core revenues up 4.5%.

Our segment core operating margin was up 160 basis points in the fourth quarter, while our reported operating margin increased 120 basis points from the prior year to 14.2%.

The Diagnostics businesses continued their strong performance with mid-single digit core growth in the fourth quarter.

At Beckman Coulter Diagnostics core sales grew to mid-single digit rates, our best quarterly performance since acquiring the business.

Sales were robust in the high-growth markets particularly China, where continued government investment in healthcare infrastructure is part of the national healthcare reform as a result of an increased demand for our clinical chemistry and immunoassay analyzers as well as our automation solutions.

We remain bullish on the high-growth markets and believe that we will continue to benefit from our expanding install base of instruments.

We continue to be impressed by the Beckman team's use of DBS with noticeable improvements in quality and service contributing to improved customer satisfaction and leading to increased profitability.

Radiometer's core sales increased at a low-teens rate, lead by solid growth of both our core blood gas instruments and AQT immunoassay analyzers.

AQT's install base now exceeds 1,000 with the number of tests per day per instrument increasing more than 20% over the past year.

Leica Biosystems sales increased at a low-double digit rate with advanced staining and core histology sales up mid-teens and high-single digits respectively.

Growth was balanced geographically with North America, Europe, and China all contributing during the quarter.

We closed the previously announced acquisition of Aperio Technologies, a leader in digital pathology.

The combination of Aperio and Leica Biosystems is expected to build upon our existing digital pathology innovation and go-to-market capabilities to foster better outcomes for physicians and patients alike.

We also closed the previously announced acquisition of IRIS International, a leading manufacturer of automated in-vitro urinalysis diagnostics systems and consumables.

IRIS's well-respected brand and market position provides an attractive entry point into this fast-growing IBD segment.

Our Life Sciences businesses core revenues increased high-single digits in the quarter.

AB SCIEX core sales grew low-double digits in the quarter with particular strength in China and North America, lead by the ramp in sales of our new 6500 Triple Quad system launched earlier this year.

During the quarter we also opened a new application support and training center in India to assist our customers in this important growth market.

Both AB SCIEX's TripleTOF 5600 and Beckman Coulter's MoFlo Astrios cell sorter was part of a groundbreaking research initiative performed by Dr. Yamanaka at Kyoto University in Japan who was recently awarded the 2012 Nobel Prize in the field of medicine.

Dr. Yamanaka's work aimed to reprogram adult cells into so-called induced pluripotent stem cells that can be used to cure certain diseases.

This is obviously an outstanding achievement for Dr. Yamanaka and we are proud to support his research.

Leica Biosystems core sales increased at a mid-teens rate in the quarter with strong demand for our SP8 confocal microscope in most major geographies.

We began shipping the SP8 modular confocal laser scanning microscope earlier this year and are encouraged by the sales ramp-up in the past couple of months.

Turning to Dental, segment revenues increased 3.5% in the quarter with core revenues up 4%.

For the full year core revenues grew 3.5%.

Operating margin increased 430 basis points to 15.2% in the quarter.

We are particularly pleased with Dental's margin performance this year with OP margin increasing from less than 12% in 2011 to 14.5% in 2012.

Dental consumables core revenues grew at a mid-single digit rate in the quarter, lead by robust global sales for our orthodontic solutions, general dentistry consumables, and infection prevention products.

KaVo core revenues grew at a low-single digit rate, lead by double-digit growth in North America.

We've seen solid demand for our imaging product in the US with record quarterly unit shipments of our i-CAT 3D cone beam imaging solution.

While Europe remains weak, we are pleased by the success of our recently launched E30 mid-price point treatment unit with more than 500 units shipped in the second half of 2012.

Our Dental businesses picked up an impressive 17 county choice awards as voted on by dentists and dental practitioners in the December Dental Town magazine.

Counties recognize the most reliable products and their peer-recommended products and services across the dental industry are often leading indicators of potential growth.

During the quarter we acquired Aribex, a leading provider of portable and handheld imaging systems.

Handheld and portable imagers are among the fastest-growing segments in the intraoral imaging systems market, with Aribex well-positioned to capitalize on this growth as a result of its patents, intellectual property, and a robust product pipeline.

Moving to our Industrial Technologies segments, revenues increased 10% for the quarter with core revenues up 2.5%.

For the full year revenues grew 6% with core revenues up 1.5%.

Our core operating margin increased 90 basis points in the fourth quarter while our reported operating margin was flat at 18.1%, due primarily to the impact of recently acquired businesses.

Product Identification core revenues grew high-single digits in the quarter, lead by solid demand for Videojet's continuous inkjet printers in all major geographies.

During the quarter we launched four new products, including the 1550 and 1650 next-generation CIJ printers introduced at PACK EXPO in October, and a CIJ printer designed and produced in and for China to target tight marking applications there.

Videojet has seen great success with localized products in the Asian market, introducing five new key printers over the past few years for that region.

Esko's core revenues grew at a mid-single digit rate in the quarter with good balance globally.

At our analyst meeting in December we showcased Esko's next-generation packaging management software, Suite 12, that targets consumer packaged goods brand owners.

Customer response thus far to Suite 12 has been very good.

Revenues at X-Rite, our largest acquisition of the year, grew at a high-single digit rate in the fourth quarter compared to a year ago when it was a standalone company.

If you picked up the Wall Street Journal in early December you likely saw Pantone's 2013 Color of the Year announcement, Emerald Green.

Response to the announcement was nothing short of extraordinary with extensive TV and print media coverage as well as blogs, twitter, and Facebook all talking up Pantone's pick.

In Motion we saw core revenue growth at a low-single digit rate in the quarter due in part to an easy prior-year comparison.

Our core Industrial Automation and Engineered solutions businesses continue to be weak.

We are encouraged by the sequential improvement we've seen at Kollmorgan and by the pickup in order activity, which turned positive for the first time in over a year this quarter.

However we believe Motion core revenues will continue to decline year-over-year during the first half of 2013.

So to wrap up, the fourth quarter finished obviously strongly, contributing to a year at Danaher.

Our teams executed well amidst economic uncertainty with record free cash flow, superior earnings growth, and operating margin expansion throughout the year.

The structural cost actions undertaken in the fourth quarter position us well for further margin expansion and will allow us to fund growth opportunities where they present themselves.

Financially we are well-positioned to take advantage of what we believe will be an attractive acquisition environment in 2013.

Given that we now expect to close the pending divestiture of Apex Tool Group within the next two weeks, and thus we'll have no earnings contribution either in the quarter or the full year from Apex, we are updating our full-year 2013 adjusted diluted net earnings per share guidance to $3.32 to $3.47 from a previous GAAP diluted net EPS range of $3.40 to $3.55.

We are initiating first-quarter adjusted net EPS guidance of $0.72 to $0.77.

The adjusted guidance excludes the anticipated gain on the disposition of Apex as well as any benefit related to the retroactive reinstatement of certain federal tax provisions contained in the American Tax Relief Act of 2012.

We anticipate low-single digit core growth here in the first quarter.

Thanks, Larry.

Surlan, that's the conclusion of the formal comments, so we're ready for questions.

(Operator Instructions)

Scott Davis, Barclays.

I've never heard anybody get so excited about a Color of the Year contest or Pantone's -- must have missed that journal addition.

Anyways --

We'll get a copy out to you today, Scott.

Congratulations to you on that.

Guys there's a little bit of a disconnect when you think back to your Investor Day in mid-December, you were pretty cautious overall, even including Life Sciences and you came in with a pretty strong volume.

And now you're getting a little bit more cautious for 1Q as far as core growth.

Was there a pull forward at all in that last couple weeks of December in Life Sciences or anything?

Related to book-to-bill that would give you some concern about the start to the first quarter?

Scott, I don't think in terms of the big picture there's really any change six weeks on here from what we said in New York in mid-December.

Clearly, we finished more strongly than we had anticipated -- even then when we were together, but I don't think we're at a point here where we would extrapolate too much too soon from that strong finish.

Clearly, we saw the new products that we launched midyear in Life Sciences and Diagnostics, particularly in Life Sciences at AB SCIEX and Leica Micro finished quite strongly, both in terms of the underlying order book but also the product we were getting out the door.

I think we would also acknowledge that in Dental -- another business that lead the way here for us in the fourth quarter, they probably saw a bit of a surge in demand at the end of the year in part just because of all the uncertainty around tax policy in general and the Section 179 depreciation dynamic particularly.

I think if you look at the exceptionally strong finish we saw in North America in Dental equipment particularly around imaging, it's hard not to attribute some of that to the uncertainty around the tax situation.

And I think we saw a nice pickup particularly in the US.

It looked more like a sprint to the finish as opposed to anything we're going to call structural at this point in some of the Industrial businesses.

Again we mentioned Fluke going positive in the fourth quarter.

PID was quite good.

So I think if you look at Life Sciences and Diagnostics for example, I think that second-half core growth of 3% probably a little bit more indicative of what we're looking at going forward, pretty much in line with that 2% to 5% guide we gave you in New York.

I think Dental again we'd say -- maybe it's a point of core that we'd adjust downward to try to look at the run rates given what we saw here in North America, so again I think we're pleased with the finish.

But we think it's premature to try to cast that strength too far at this point given what we have seen.

Scott, the other dynamic we have in the first quarter, we have one less business day.

And it probably doesn't impact much the 60% of the business that's equipment and instruments, but as we look back it definitely impact the 40% that's consumables.

And that alone probably impact the first quarter by 0.5 point to 1 point.

Sure.

That's helpful.

Just as a follow-up, guys, we've seen a real pickup in China in medical spend I think consistently across most of the companies that we cover.

What's your experience here?

The sustainability -- there was a history in some of these markets that the government would have big spend cycles for a quarter or two and then not spend for another couple quarters.

Is there something this time around that might lead us to believe that this is more of a sustainably higher level of spend that is a new trend given government initiatives?

How do your guys over there think about that?

Scott, I was in China two weeks ago.

And we spent a fair bit of time on this subject.

I think it's interesting if you just look at our own trends through the course of last year.

We really saw quite the bifurcation between our Industrial businesses and our healthcare businesses, both LS&D and Dental.

We were basically up 20% for the full year and we saw that strength throughout the year on the healthcare side of the portfolio.

We were down nearly double-digit in the first half on the Industrial side and our improved overall numbers in China were a function of Industrial basically getting to a flat level in the second half.

I think when we look at what's happened in Life Sciences and Diagnostics, we are clearly the beneficiary of a multi-year buildout with respect to the healthcare delivery particularly in the West but also increased utilization.

And I think that will continue.

That program clearly stood up when others didn't during the government transition here of late.

I think on the Life Science side we're clearly benefiting as others are from the government's effort to build out an indigenous research and development base.

And I'd say the Dental market is still in its infancy and our own execution there has gotten quite good the last couple of years but it was an area where we had clearly underinvested and thus underperformed.

I think we see that as part of a long-term trend just given the demographics in China.

So our sense is that this is not a quarter or two but that healthcare's important for a whole host of different reasons over there and we're well positioned.

I think on the Industrial side, what our folks were pointing to was again stability, some sequential strengthening, but probably a point of view that things get better through the course of the year as we have more certainty as to who is in some of the lower-level jobs as the new regime takes shape.

Once those decisions are made, we'll see hopefully an initiation of more spending than we've seen clearly in infrastructure, we are keen to see some of that I think given some of the recent headlines around the environment, we'd be well-positioned that were in an area where we saw increased interest both on -- particularly, obviously on the water side.

So I think our view on China for '13 is good.

Again longer-term I just don't see these healthcare trends that we're seeing in our own numbers, Scott, tailing off.

We just don't.

Okay.

That's really helpful.

I'll pass it on.

Thanks, guys.

Jon Wood, Jefferies.

So, Beckman Diagnostics -- I'd like to touch on that.

Looks like that business actually above market for the first time in quite some time in the fourth quarter.

You spoke to some of the high-growth market trends but can you speak to the developed world, what you're seeing in that business particularly in the US?

And then just comment why is a low single-digit number still relevant vis-a-vis that fourth quarter trend?

I think, Jon, the outlook as you suggest for this year is still low single-digit as opposed to mid single.

We were at low singles through the first three quarters and really thought that's where we would be in the fourth quarter.

I would say that clearly from a geographic perspective the growth we're seeing at Beckman is really a function of, if you will stability in the West with strength in the high-growth markets.

I think we still have work ahead of us as we pay off some of the inheritance tax here in the US, again encouraged by retention and win rates in that regard.

But that's a multi-year effort to get what is fundamentally a business where the consumables drive the growth and that's a function of the install base.

It's going to take us a while to do that.

Though again we were very encouraged by the fourth quarter with respect to the new AU series.

I think with respect to Europe, I don't think we're really expecting the European market to contribute to growth, but stability there even if it's a low single-digit grind down if we are executing better as I think we will in 2013, that's not as much of a drag on us as it has been the last couple of years.

So maybe we are conservative with respect to what we're capable of delivering in this market, in the West.

But I think at least here in '13 the general mix will be similar to what we've seen.

We can do better.

Obviously we'd love to do that but really see that mid single-digit growth more in '14 than this year.

Got it.

That's good color.

I know you're going to refrain from commenting on the FDA front, but anything in your correspondence with them that would suggest that troponin submission is further out than we may think or has the feedback from that organization been just again procedural at this point?

I'm looking for any color you're willing to share on where we on the troponin situation in the US.

I appreciate the way you frame that because as you know our practice has been to I think respect the sanctity of the dialogue with the Agency and not be too public with the details.

I would characterize the conversation as constructive, productive, and ongoing.

So we've I think publicly tried to avoid being too specific about where this conversation takes us and the timeframe in which we get to final resolution.

I think we continue to be optimistic that we will have that product on the market in the future.

Again, it's tough to put a finger on the calendar as to exactly when but we're no less convinced that, that will happen in time as we work through the topic with the Agency.

Again, I would reiterate that while that is an open switch here in the US it continues to be a product in the market in many other places around the world.

With so many of the other improvements that we're making at Beckman in the US, that customers can see in terms of quality, in terms of service, other new product introductions, the way our call patterns are set up, there's just so many positive effects from the implementation of DBS that even without the troponin assay in our arsenal today you're seeing those improvements in retention rates and win rates.

So I understand the focus.

It's a very fair question.

But customers weigh a lot of different things when they're making a decision.

And increasingly, many of those other things are in Beckman's favor.

And obviously when troponin is back on the market that will be just one more check on our side of the ledger but we're not there today.

Understood.

I appreciate the comments.

Shannon O'Callaghan, Nomura.

Larry, could you give a little more color on the positive bookings turn at Fluke?

In terms of geography or end market or any other color?

I would say that really what we saw, Shannon, probably more than anything was a little bit better performance here in the US.

I think Europe continues to be a bit of a struggle for us.

I think the high-growth markets again broadly speaking have continued to be really the highlight for us at Fluke.

We got a little bit of a benefit I think as we wound down the year as we saw some of the inventory adjustments in China really come to a close.

But we're not expecting as you know a big pop back in T&M.

Generally Fluke will be an important part of that, but we would like to think that T&M is up in line with the Corporation in '13, and I think Fluke will be an important part of that on the instrument side to be sure.

Okay.

And then in InMotion you said the bookings there turned positive -- I don't know if it was for all InMotion or just Kollmorgan, why do you expect the core revenue growth to still be negative in the first half of '13?

We have some tough one-off comparisons there in the Motion businesses, Shannon.

And again I think given some of the underlying demand trends that we see I think it's going to be sluggish there through the first half.

Where we have vertical exposure, particularly in Tech and certainly in some of the renewables we had a very tough 2012, but we still had some business that will create a little bit of a year-on-year comparison challenge for us here in the first half as well.

But hopefully -- clearly with the guide that we gave you last month, we think Industrial Tech will really be probably in the five hole relative to performance on the core side in '13, unfortunately in part or in large part because of what we'll see at Motion.

The obvious contrast there is Product ID, which finished strongly is really going to be one of our outperformers here in 2013.

Okay.

So no underlying real change in the trend in Motion then?

I don't think so.

I think in terms of the Industrial capital equipment markets that we serve, they have been challenging.

They've been challenging here to a degree certainly in Europe.

And in China.

I think that continues here for a couple of quarters as we see it.

Okay.

Great.

Thanks, guys.

Jeff Sprague, Vertical Research Partners.

Larry, I was wondering if you could address deals a little bit and then really the essence of my question is the environment and valuations.

Obviously the stock market is maybe frothy, maybe it's not but we've been on a nice run.

So it sounds like you see things in the pipeline but how do you balance that against valuations and the ability to get things done on reasonable terms?

Jeff, I think we are optimistic about getting things done in 2013.

I think that's a function of the pipeline, to be sure.

And it's a pipeline again rarely dominated by public companies.

I don't want to suggest that public company valuations are irrelevant to us.

And I'm hopeful that we do some public company deals this year, but a fair bit of what we do is often on the private side, be it with families or independent owners and at times PE but PE's really not a big source for us, so let alone a real competitor.

I think one of the dynamics that really works to our favor is our breadth of scope, and where we would like to build out.

Clearly in all five of our segments we've got areas where we clearly would like to put capital to work, so when certain segments might be a bit up, our discipline stays intact.

We'll move into some other areas and be a bit more active there through a cycle.

I think you've seen a pretty good distribution of the deployment of capital.

So I think in terms of how we work through that, ultimately the backstop is the discipline that I think we've demonstrated over a long period of time.

Strong focus obviously on the strategic quality of the business, operationally our ability to add value, but when the math doesn't work, when we can't generate positive returns, cash-on-cash returns for our shareholders, I think Dan and I are very comfortable letting things go.

I think it's as simple as that.

Can you give us a sense if you have the numbers even roughly maybe Dan has them $1.8 billion spent in 2012 on 14 deals -- the aggregate valuation on that basket and how is that relative to history?

It's probably in the zone -- X-Rite would be the biggest one and that was sub 10 times EBITDA.

IRIS -- probably overall I would say about 10 times EBITDA, maybe 10 to 11.

I would say in that $1.8 billion of spend, and it's the benefit of doing bolt-ons and that's really an adjacency deal -- a lot of margin expansion opportunity across that revenue base.

So I think that's a 10 times, 11 times that we can get to 8 times without any revenue growth.

And that's obviously the benefit of when we're doing any kind of bolt-on adjacency-type deals, and if you look at -- I feel pretty good about the valuation overall.

Didn't feel like we really had to stretch for any of those deals in all, in that zone where we think we'll exceed a 10% return within three years.

Right.

And just to follow-up on healthcare, Larry, you hit a lot of it with your comments a moment ago on Beckman.

But just overall, as the calendar rolled over, is there a measurable sense of different momentum, whether it's a positive because of the alleviation of the uncertainty of who's President, or the negative because of uncertainty about the device tax?

Is there just across the whole fleet if you will in the US, anything to discern here early on?

No.

Again, I think what we saw in terms of the acceleration at year end perhaps was born of a bit of uncertainty, some of which has been addressed clearly on the tax side, but I don't think anyone is really taking too much for granted here.

Clearly the medical device excise tax is something that we're going to have to work through as are others, not only in Diagnostics but also in Dental.

Really doesn't impact the Life Science space, the research space directly.

So, I think it's hard to discern anything that's material or structural that's different, particularly here in DC.

I think folks know that while there was some clarity in terms of who's going to be President and in the short-term clarity around fiscal policy, in many respects that can was kicked down the road and they're going to be open questions still addressed through the course of the year.

But I think by and large, where we play in terms of research tools, our new product cycles, position us well to get our own fair share of the spend there.

Clearly on the Dental side an improved stock market gives a little bit of a better tone in the US, should help patient traffic.

We can execute well there.

And I think of the Diagnostics side again given our starting point at Beckman we can make a good bit of our own luck there.

If you look at Radiometer and Leica Bio as any indicator of that potential, while we've never said will be a high single low double-digit grower at Beckman DX, we do think in the short-term we can offset any headwinds that might be out there.

Great.

Thanks for the color.

(Operator Instructions)

Steven Winoker, Sanford Bernstein.

Just first question can you give a little clarity on the 100 basis points of additional SG&A as a percentage of revenue this year versus last, just maybe dive into that, tear it apart?

Steve, I'd have to look at that off-line.

I suspect part of that is the full-year impact of Beckman.

So last year we only had Beckman for six months.

And I think we normalize that, you probably would have seen some SG&A leverage.

I think it's a little apples to oranges given the Beckman full year versus six months a year ago.

That would be great if we can do that off-line, I'd like to make sure on a pro forma basis, understand what's happening on the G&A part.

But overall, G&A are you investing globally in any additional initiatives beyond expectation or where you were or --?

Well, I think the attitude, Steve, is still to be lean and tight from a G&A perspective, but certainly as we've gotten bigger, and the high-growth markets have become more important, we've been reshaping what constitutes, if you will, the Danaher overhead piece.

So, we have more capability on the ground in places like China from a Danaher perspective.

Jon Clark as you know one of our Group Executives, a member of the Danaher leadership team is now in China as the President of Danaher China really to make sure that we're doing more as Danaher China in that regard.

I think similarly, as these platforms have really taken on critical mass, there are things we're going to be able to do in Life Sciences, in Dental, much as we have in water, and in T&M as a platform.

Again, we want to keep the G&A lean, but I think we're also going to be putting and trying to achieve more, strategically and in terms of harvesting synergies at a platform level.

Again, we want to avoid bureaucracy.

We want to avoid undue costs but I think these regional and platform-level efforts have really paid some early dividends for us.

And that's probably what is most top of mind for me and Dan as we look at not only the level of the G&A spend but the nature and shape of it.

Okay.

Just on the growth side a little more specifically, where are you in terms of the regulatory approvals for the ballast water, and on the IMO and Coast Guard?

How are you thinking about that product on the approval path?

Well, a little like other regulatory approvals, while the strategic intent and the spend level is unchanged, the timeframe there relative to our certifications is a bit more unpredictable, Steve.

But clearly the internal testing we talked about at Trojan is underway.

I think we're hopeful that some of that -- the validation work in essence is completed here in the first half of 2013.

We did get our first installation late last year, pleased with that.

But it's been a bit unpredictable, which is why we really haven't weighed in a lot in terms of '13 contribution at Trojan from ballast water.

Okay.

Great.

Thanks, guys.

Ross Muken, ISI Group.

Can you talk about maybe some of the new product momentum you're seeing in some of the key businesses, whether it's on the Life Science side, or also in the T&M business?

Ross, I'm sorry, I didn't catch the first part of your question.

Product momentum, new launches, key things to look out for over the course of the year in terms of contributing to growth outside the macro?

Yes.

I think we -- again, are clearly in Life Sciences particularly in a very strong new product position.

I think at SCIEX with the 4500, the 6500 you're seeing strong traction, that's something to watch.

That's not a one quarter dynamic.

I think similarly at Leica Micro we're in a good place.

The SPA will continue to be a important growth driver for us as we ramp there.

And that's really the way I would think about Life Sciences.

Again Diagnostics as you well know is a little bit tougher to turn, but I think as we ramp the AU series, the new clinical chem family at Beckman we're going to be in particularly good shape.

But if you go to the shows this spring, ASMS and the like I think you're going to see SCIEX, Leica, Beckman, all continue to launch really a steady bucket of new product introductions.

I think in T&M again, I think at Fluke particularly in thermography we're encouraged by the early response to this new visual thermometer.

There are other products that we plan to get out in '13 really in the back of some of the technology that was brought in last year.

I think at T&M particularly on the scope side we're in a good place.

We've talked about some of the awards that we've seen with the launches that are still due to ramp through the course of 2012 and there's more to come in that regard.

Clearly innovation is important in both of those segments, we continue to invest in R&D, spend a lot of time deploying the DBS tools to accelerate those product launches and drive as much commercialization success as we can.

Great.

Maybe just one other quick one.

So I'm looking at indication on the stock this morning, it's off $2.

I'm looking at my inbox, people are obviously talking about the guidance commentary.

I think in general it's very consistent with what you talked about at JPMorgan not long ago.

As we think about the progression over the year, really is it just -- we are early in the year, a function of where we're just starting to maybe turn a bit on the cycle and we're not sure where we are?

What are you looking for on either the macro front or just within the business in terms of getting more comfortable and maybe a more constructive outlook in terms of core growth of the business for the year?

Ross, again, I think you're spot on.

We're trying this morning not to say anything that is fundamentally different than what we said in New York in mid-December or what we said at the JPMorgan conference earlier this month.

I think we're pleased certainly with a stronger finish to the year, and I think we're acknowledging some of that might've been a pull forward from 2013, but I think all things being equal we think we're looking at a challenged growth environment in the West.

One that's getting better and one that could continue to improve sequentially through the course of the year.

But it's still going to be a high-growth markets story for us as it will be for most companies.

In terms of increasing our guidance in any form, I think six weeks on is just again premature.

But we'll certainly as our practice, literally look at everything.

How China's ramping not only in terms of what we're shipping, but order books, other leading indicators, looking at POS and T&M, particularly on the instrument side, will be another important marker for us.

But I think that the way we're going to operate in this environment is really no different than the way we've operated before in terms of recognizing the macro realities and challenges that are out there and trying to make as much of our own luck as we possibly can.

But again there's no change here from what we said earlier this month, let alone the middle of last month.

I think we're pleased with the restructuring we got done here in the fourth quarter as Larry alluded to, over $120 million.

I think we're going to track well to the savings here in 2013.

And one of the challenges that we had was the Test and Measurement segment margins particularly in the second half, which were down like 300 basis points year-on-year.

That's going to get better here.

And both because growth is getting a little better there but also because that segment had a disproportionate amount of the restructuring here, I think we're feeling better about how T&M is shaping up here early in the year.

Great.

Thanks, guys.

Julian Mitchell, Credit Suisse.

Firstly when you think about the gross margin, you've had three years in a row now where it's been above 50%.

It's up the last couple of years.

And you've done a bunch of restructuring.

So when you think longer term, do you think that mid 50%s run rate is achievable?

Obviously depending on timing and size of deals?

Julian, I think we do have gross margin expansion potential here.

As Dan just highlighted a moment ago, clearly one of our higher gross margin businesses -- certainly one of our higher VCM businesses, T&M, had a tough 2012, and they're back in a more normal trajectory, that's accretive in that regard.

Clearly as we drive the install bases of these new products in LS&D, we get good margin gross sales in the short term, but over time as that install base grows and the higher-margin consumables course through those instruments that helps us as well.

You're right, we've done a lot of restructuring the last few years.

We don't have a lot teed up here in the next 90 to 120 days but there's always structural cost to overcome as well.

So I wouldn't put a target out there because as you alluded to, the next acquisition may come in a way that helps or hurts gross margin temporarily, but I don't think we've in any way pinned the gross margin number on the ceiling here just yet.

Got it.

Thanks.

Just in terms of your own plans around R&D and CapEx.

R&D to sales is flattish at about 6% in the quarter in the last couple of years.

Is that a good run rate going forward?

Then on CapEx that was up by about 5% I think in Q4.

How are you feeling about your CapEx plans for the year ahead?

Julian, we certainly focus on the R&D figure more so than we do the CapEx.

I think CapEx is probably going to be in that $550 million-ish range this year.

Just to give you a number there.

I don't think again, from an R&D perspective when you look at where we finished and where we're likely to be 6%, 6.5% in that band, that we're really managing R&D with those ratios foremost in our mind.

I think what we're trying to do is make sure that strategically we know what we need to be doing to drive growth, investing in both technology and new product development.

And then positioning ourselves to fund those programs within businesses across the portfolio that represent the best opportunities for us.

And if that means we ought to spend a little bit more or we could spend a little bit less, we'll do that.

I don't think we're of the school that you really want to just manage R&D through that ratio because you can end up I think spending money that you don't necessarily need.

But clearly part of what we did with the restructuring as we alluded to, through the course of last year, was set ourselves up this year to increase any growth funding.

Be it R&D, be it on the sales and marketing side as well perhaps that might be warranted as opportunities come forward.

Great.

Thanks.

Deane Dray, Citi Research.

We're coming down to the wire on Apex.

Can you just remind us the after-tax proceeds, the gain, and then the use of the proceeds?

I know you've baked in some buybacks already but just those are the targets for 2013?

Sure, Dean.

Our 50% of the JV we expect gross proceeds of about $800 million, after-tax proceeds of a little bit over $650 million.

We'll report a gain of about $0.19 a share here in the first quarter.

Given we've -- we purchased about 12.5 million shares of stock here in the second half of last year in the low [$50s], I think our expectation is aligning shares in terms of targeted towards M&A here in '13.

Great.

And then, Larry, in terms of the water side of Danaher, the two businesses that I'd like to touch on, one is on ChemTreat, very quiet success story, 10 quarters of double-digits.

Just remind us what the strategy there has been because a lot of people thought this is a chemicals business but it's more of a solutions business.

But you've grown this gained share over this time period and just you're targeting specific end markets that are more attractive, that's the first question.

Second one on Trojan, some push outs in the third quarter, didn't sound like that repeated in the fourth quarter.

Just give us an update on that too please.

Sure.

You bet.

I think that at ChemTreat, the story in many respects is a simple one.

This is a business, largely a domestic business that has just done over time, before we were involved -- but clearly over the last 10 quarters, an exceptional job of taking very good care of their customers.

You're right, they transact typically through the supply of water treatment chemicals, but what customers really buy, though, is the expertise, the service, and the quality of the support that their local ChemTreat teams provide.

I think being in a position where we've been able to build that team over time, continue to enhance the overall service and quality levels in the business, has really been just a daily execution story much more so than any grand strategy and again our hats are off to the team at ChemTreat.

They've just been outstanding partners with us and we're really proud of the results they've delivered.

Trojan's been another very strong story for us.

Going through, I think, a couple of tough quarters here to be sure.

As we've seen some of the bigger projects roll off around the world, and as the municipal market particularly around some of the bigger ticket capital programs tightened up here.

But I think as we look forward at Trojan, continue to be convinced around the UV disinfection opportunity, Trojan's position in it and as you know, Dean, better than anybody, the ballast water opportunity is out there.

I think it's going to come, just a matter of getting the timing down, so there's some uncertainty in the short term, but I think longer term, again that's going to be a meaningful opportunity for Trojan on top of what they do today for their municipal and their industrial customers.

Great.

Thank you.

And at this time I'll turn the conference back over to Mr. McGrew to offer any additional or closing remarks.

Thanks for joining us, everybody.

Dan and I are around in the morning for any follow-ups.

That concludes today's conference.

Thank you for your participation.