2011 annual report Building ao l gl Ba science & technology c mpanyo For more than 25years, d anaher has earned a reputation for building strong businesses. organic investments, complemented by strategic acquisitions, have helped us to build a portfolio of businesses with leadership positions in each of the markets that we serve. Building T oDAY, nearly 60% of danaher’s revenues are generated outside the united states, with a quarter of all revenues derived from the emerging markets. We are working hard to further expand our global presence by investing in local talent, products and manufacturing capabilities. a B l g Building ao l o ver the last decade, danaher has deliberately and consistently strived to build a portfolio of businesses focused around science and technology. ToDAY, over 90% of our revenues are a derived from scientific and B technological businesses. l g Building ao science & technologyl Life Sciences & Diagnostics We offer a broad range of research and clinical tools that scientists use to study cells and cell components to understand the causes of disease, identify new therapies and test new drugs and vaccines. We also offer analytical instruments, reagents, consumables, software and services that hospitals, physician’s offices and reference laboratories use to diagnose disease and make treatment decisions. Test & Measurement We are a leading global provider of electronic measurement instruments, professional test tools, thermal imaging and calibration equipment used in electrical and industrial applications. We offer general purpose test products and video test, measurement and monitoring products used in electronic design, manufacturing and advanced technology development, as well as monitoring, management, optimization tools and security solutions for communications and enterprise networks. Environmental We provide products that help protect our water supply and air quality and serve two primary markets: water quality and retail/commercial petroleum. Our water quality business is a global leader in water quality analysis and treatment, providing instrumentation and disinfection systems to help analyze and manage the quality of ultra pure, potable and waste water in residential, commercial, industrial and natural resource applications. Our retail/commercial petroleum business is a leading worldwide provider of solutions and services focused on fuel dispensing, point-of-sale systems, payment systems and environmental compliance. Industrial Technologies We are a leading provider of equipment and consumables for variable printing, marking and coding on consumer and industrial products. We also provide electromechanical motion control solutions for the industrial automation and packaging markets. Dental We are a leading worldwide provider of a broad range of consumables, equipment and services for the dental market. Our products are used to diagnose, treat and prevent disease and ailments of the teeth, gums and supporting bone, as well as improve the aesthetics of the human smile. Building ao l gl Ba science & technology c mpanyo Dear Shareholders, 2011 was another outstanding year for Danaher. We achieved a number of major financial milestones during the year: H. lawrence Culp, Jr. President & Chief Executive Officer > Record revenues of $16.1 billion with core revenue growth of 7%. > R&D spending exceeded $1 billion for the first time in Danaher’s history. > Free cash flow of $2.4 billion with a free cash flow to net income conversion ratio of 124%, representing the 20th consecutive year in which free cash flow exceeded net income. > Deployed a record $7.5 billion of capital to acquire 14 new companies, including Beckman Coulter, across all five operating segments. > Adjusted diluted earnings per share increased more than 28% to $2.83. d anaher Financial operating highlights (dollars in thousands except per share data and number of associates) 2011 2010 Sales* $ 1 6 , 0 9 0 , 5 4 0 $ 1 2 , 5 5 0 , 0 3 3 operating profit* $ 2 , 6 1 7 , 2 2 6 $ 2 , 0 4 9 , 6 2 0 net earnings* $ 1 , 9 3 5 , 2 8 7 $ 1 , 7 1 8 , 1 8 3 earnings per share (diluted )* $ 2 . 7 7 $ 2 . 5 3 operating Cash Flow* $ 2 , 7 3 2 , 0 3 6 $ 2 , 0 1 8 , 6 9 8 Capital expenditures $ 3 3 4 , 4 7 1 $ 1 9 1 , 1 1 0 Free Cash Flow (operating cash flow less capital expenditures)* $ 2 , 3 9 7 , 5 6 5 $ 1 , 8 2 7 , 5 8 8 number of associates 5 9 , 0 0 0 4 8 , 0 0 0 total assets $ 2 9 , 9 4 9 , 4 4 7 $ 2 2 , 2 1 7 , 1 3 0 total Debt $ 5 , 3 0 5 , 1 9 2 $ 2 , 8 2 4 , 6 6 8 Stockholders’ equity $ 1 6 , 9 7 1 , 7 6 8 $ 1 3 , 7 7 2 , 7 6 6 total Capitalization (total debt plus stockholders’ equity) $ 2 2 , 4 5 0 , 3 6 0 $ 1 6 , 5 9 7 , 4 3 4 *from continuing operations Building a Global Science & Technology Company with DBS Danaher has been deliberately and consistently evolving our portfolio of businesses for more than a decade. In 2001, we generated revenues of about $4 billion and approximately 50% of those revenues were derived from our strategic growth segments. Since then, we’ve quadrupled our revenues to more than $16 billion with more than 90% coming from our strategic growth segments. the quality of that growth is evident in many ways, including our gross margin, which a decade ago was less than 40% and today is in excess of 50%. as we grow and evolve our portfolio, we aspire to continue to: ( 1 ) BuIlD great businesses; ( 2 ) create a gloBal company; ( 3 ) develop market-leading scienCe anD teCHnology for our customers; and ( 4 ) use the principles of DBS to help us achieve our goals. Building For more than 25 years, Danaher > Hach’s Dr3900 Spectrophotometer, which uses rFID has earned a reputation for building technology to reduce manual data entry and improve strong businesses. organic investments, sample tracking and data integrity in environmental complemented by strategic acquisitions, water analysis. have helped us to build a portfolio of > Arbor networks’ pravail APS, the only enterprise data businesses with leadership positions in center product designed for mitigating Distributed each of the markets that we serve. Denial-of-Service (DDoS) attacks. Investing in innovation is a critical part > Our dental business’ three-in-one digital imaging system of how we build businesses. We spent that combines 2D panoramics, cephalometrics and 3D more than $1 billion on research and imaging and provides scalable functionality to meet the development (r&D) initiatives in 2011 clinical demands of our customers. with the goal of bringing innovative > Beckman Coulter’s AU5800 series, which extends our new products to market quickly to serve reach in clinical chemistry analyzers to very high and customers’ needs. our customers ultra-high throughput customers. benefited from a number of new product launches in 2011, including: > In 2011, tektronix launched the MDo4000, the world’s first Mixed Domain oscilloscope delivering the functionality of both an oscilloscope and a spectrum analyzer in a single instrument. the mixed-domain allows engineers to see time-correlated analog, digital and wireless signals at the same time, driving quantum gains in test productivity. the MDo4000 was named 2012 test product of the year by Test & Measurement World. Capital deployment via acquisitions complements what we do organically and further helps build strong businesses. In 2011, we deployed a record $7.5 billion of capital and significantly improved the Danaher portfolio with the acquisition of 14 new companies across all five operating segments. at the same time, we transitioned out of some of our legacy businesses that were no longer considered significant core growth opportunities for us. > Beckman coulter is a leading supplier of in-vitro diagnostic systems, including instruments, consumables, software and service for the biomedical laboratory market. our clinical diagnostic systems are found in hospitals and other clinical settings around the world and deliver critical information to physicians to diagnose disease, make treatment decisions and monitor patient care. Scientists use our life science research instruments to study complex biological problems including causes of disease and potential new therapies or drugs. More than 275,000 Beckman Coulter systems operate in both diagnostics and life sciences laboratories on six continents. For more than 75 years, our products have been making a difference in peoples’ lives by improving the productivity of medical professionals and scientists, supplying critical information for improving patient health and reducing the cost of care. Global t he outstanding leadership positions > Our emerging market revenues grew more than 12% our businesses have built thus far are not in 2011 compared to 2010. sustainable over the next decade unless > Our China footprint increased more than fourfold to we also lead in the faster growing regions approximately $1.7 billion from 2007 to 2011. of the world. today, nearly 60% of Danaher’s revenues are generated outside the united > We have more than 1,200 engineers and scientists States, with a quarter of all revenues working in emerging markets. derived from the emerging markets. We > We made 10 in-country emerging market acquisitions are working hard to further expand our over the last five years. global presence by investing in local talent, > We doubled our low-cost region sourcing to nearly products and manufacturing capabilities: 30% from 2005 to 2011. as we look to continue to build a global presence, we are increasingly allocating resources to growing our r&D development centers, the largest of which is located in Shanghai, China and has more than 800 product development engineers working for 15 Danaher businesses. By bringing these resources together in one location, we are able to more quickly build scale in the region, which helps drive faster product development for both worldwide and local markets.