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DANAHER CORP /DE/ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of Danaher Corporation's ("Danaher," the "Company," "we," "us" or "our") financial statements with a narrative from the perspective of Company management. The Company's MD&A is divided into four main sections: • Information Relating to Forward-Looking Statements • Overview • Results of Operations • Liquidity and Capital Resources You should read this discussion along with the Company's MD&A and audited financial statements as of and for the year ended December 31, 2013 and Notes thereto, included in the Company's 2013 Annual Report on Form 10-K, and the Company's Consolidated Condensed Financial Statements and related Notes as of and for the three and six months ended June 27, 2014. INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this quarterly report, in other documents we file with or furnish to the Securities and Exchange Commission ("SEC"), in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are "forward-looking statements" within the meaning of the United States federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; management's plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions, divestitures, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Danaher intends or believes will or may occur in the future. Terminology such as "believe," "anticipate," "should," "could," "intend," "plan," "expect," "estimate," "project," "target," "may," "possible," "potential," "forecast" and "positioned" and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Important factors that could cause actual results to differ materially from those envisaged in the forward-looking statements include the following: • Conditions in the global economy, the markets we serve and the financial markets may adversely affect our business and financial statements. • Our restructuring actions could have long-term adverse effects on our business. • Our growth could suffer if the markets into which we sell our products (including software) and services decline, do not grow as anticipated or experience cyclicality. • We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce prices for our products and services. • Our growth depends in part on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation. • Our reputation, ability to do business and financial statements may be impaired by improper conduct by any of our employees, agents or business partners. 19-------------------------------------------------------------------------------- Table of Contents • Any inability to consummate acquisitions at our historical rate and at appropriate prices could negatively impact our growth rate and stock price. • Our acquisition of businesses, joint ventures and strategic relationships could negatively impact our financial statements. • The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities. • Divestitures could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements. • Certain of our businesses are subject to extensive regulation by the U.S. Food and Drug Administration ("FDA") and by comparable agencies of other countries, as well as laws regulating fraud and abuse in the healthcare industry and the privacy and security of health information. Failure to comply with those regulations could adversely affect our reputation and financial statements. • The healthcare industry and related industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, which could adversely affect our financial statements. • Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our reputation and financial statements. • Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our financial statements and reputation. • We may be required to recognize impairment charges for our goodwill and other intangible assets. • Foreign currency exchange rates may adversely affect our financial statements. • Changes in our tax rates or exposure to additional tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods. • We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements. • If we do not or cannot adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights. • Third parties may claim that we are infringing or misappropriating their intellectual property rights and we could suffer significant litigation expenses, losses or licensing expenses or be prevented from selling products or services. • Defects and unanticipated use or inadequate disclosure with respect to our products (including software) or services could adversely affect our business, reputation and financial statements. • The manufacture of many of our products is a highly exacting and complex process, and if we directly or indirectly encounter problems manufacturing products, our reputation, business and financial statements could suffer. • Our indebtedness may limit our operations and our use of our cash flow, and any failure to comply with the covenants that apply to our indebtedness could adversely affect our liquidity and financial statements. • Adverse changes in our relationships with, or the financial condition, performance, purchasing patterns or inventory levels of, key distributors and other channel partners could adversely affect our financial statements. • Our financial results are subject to fluctuations in the cost and availability of commodities that we use in our operations. 20-------------------------------------------------------------------------------- Table of Contents • If we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions and customer demand, our profitability may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components and services could cause production interruptions, delays and inefficiencies. • Changes in governmental regulations may reduce demand for our products or services or increase our expenses. • Work stoppages, union and works council campaigns and other labor disputes could adversely impact our productivity and results of operations. • International economic, political, legal, compliance and business factors could negatively affect our financial statements and in particular geopolitical uncertainties relating to Russia could impact the Company's growth in Russia. • If we suffer loss to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events, our operations could be seriously harmed. • A significant disruption in, or breach in security of, our information technology systems could adversely affect our business. • Our defined benefit pension plans are subject to financial market risks that could adversely affect our financial statements. See Part I - Item 1A of the Company's 2013 Annual Report on Form 10-K for a further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. We do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise. OVERVIEW General As a result of the Company's geographic and industry diversity, the Company faces a variety of opportunities and challenges, including rapid technological development (particularly with respect to computing, mobile connectivity, communications and digitization) in most of the Company's served markets, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, consolidation of the Company's competitors and increasing regulation. The Company defines high-growth markets as developing markets of the world experiencing rapid growth in gross domestic product and infrastructure which includes Eastern Europe, the Middle East, Africa, Latin America and Asia with the exception of Japan and Australia. The Company operates in a highly competitive business environment in most markets, and the Company's long-term growth and profitability will depend in particular on its ability to expand its business in high-growth geographies and high-growth market segments, identify, consummate and integrate appropriate acquisitions, develop innovative and differentiated new products, services and software with higher gross profit margins, expand and improve the effectiveness of the Company's sales force, continue to reduce costs and improve operating efficiency and quality, and effectively address the demands of an increasingly regulated environment. The Company is making significant investments, organically and through acquisitions, to address the rapid pace of technological change in its served markets and to globalize its manufacturing, research and development and customer-facing resources (particularly in high-growth markets) in order to be responsive to the Company's customers throughout the world and improve the efficiency of the Company's operations. Business Performance and Outlook While differences exist among the Company's businesses, on an overall basis, demand for the Company's products and services increased during the second quarter of 2014 as compared to the comparable period of 2013 resulting in aggregate year-over-year sales growth from existing businesses of 3.0%. In addition, the Company's continued investments in sales growth initiatives and other business-specific factors discussed below contributed to year-over-year sales growth. Geographically, year-over-year sales growth rates from existing businesses during the second quarter of 2014 were led primarily by the high-growth markets. Sales from existing businesses in high-growth markets grew at a high-single digit rate in the second quarter of 2014 as compared to the comparable period of 2013 and represented approximately 27% of the Company's total sales in the second quarter of 2014. Sales from existing businesses in developed markets grew at a low-single digit rate in the second quarter of 2014 as compared to the comparable period of 2013 due primarily to growth in North America and Europe. The 21-------------------------------------------------------------------------------- Table of Contents Company expects overall market growth to continue but remains cautious about challenges due to macro-economic and geopolitical uncertainties and monetary and fiscal policies of countries where we do business. While individual businesses will vary, the Company expects sales from existing businesses to continue to grow on a year-over-year basis during the second half of 2014 at a level in line with that experienced in the first half of 2014. Acquisitions During the first six months of 2014, the Company acquired fourteen businesses for total consideration of $607 million in cash, net of cash acquired. The businesses acquired complement existing units of the Life Sciences & Diagnostics, Environmental, Dental and Test & Measurement segments. The aggregate annual sales of these fourteen businesses at the time of their respective acquisitions, in each case based on the company's revenues for its last completed fiscal year prior to the acquisition, were approximately $250 million. Currency Exchange Rates On a year-over-year basis, currency exchange rates positively impacted reported sales for the three and six month periods ended June 27, 2014 by approximately 0.5% compared to exchange rate levels during the comparable periods of 2013. If the currency exchange rates in effect as of June 27, 2014 were to prevail throughout the remainder of 2014, currency exchange rates would positively impact the Company's estimated full-year 2014 sales by approximately 0.5% on a year-over-year basis. Any weakening of the U.S. dollar against other major currencies would positively impact the Company's sales and results of operations, and any strengthening of the U.S. dollar against other major currencies would adversely impact the Company's sales and results of operations for the remainder of the year. RESULTS OF OPERATIONS Consolidated sales for the three months ended June 27, 2014 increased 5.0% compared to the three months ended June 28, 2013. Sales from existing businesses contributed 3.0% growth, and sales from acquired businesses contributed 1.5% growth on a year-over-year basis. Currency translation increased reported sales by 0.5% on a year-over-year basis. Consolidated sales for the six months ended June 27, 2014 increased 5.0% compared to the six months ended June 28, 2013. Sales from existing businesses contributed 3.0% growth, and sales from acquired businesses contributed 1.5% growth on a year-over-year basis. Currency translation increased reported sales by 0.5% on a year-over-year basis. In this report, references to sales from existing businesses refers to sales calculated according to generally accepted accounting principles in the United States ("GAAP") but excluding (1) sales from acquired businesses and (2) the impact of currency translation. References to sales or operating profit attributable to acquisitions or acquired businesses refer to GAAP sales or operating profit, as applicable, from acquired businesses recorded prior to the first anniversary of the acquisition less the impact from the divestiture of a product line, the sales from which (prior to the divestiture) were included in sales from acquired businesses. The portion of revenue attributable to currency translation is calculated as the difference between (a) the period-to-period change in revenue (excluding sales from acquired businesses) and (b) the period-to-period change in revenue (excluding sales from acquired businesses) after applying current period foreign exchange rates to the prior year period. Sales from existing businesses should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting the non-GAAP financial measure of sales from existing businesses provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with our performance in prior and future periods and to our peers. The Company excludes the effect of currency translation from sales from existing businesses because currency translation is not under management's control, is subject to volatility and can obscure underlying business trends, and excludes the effect of acquisitions and related items because the nature, size and number of acquisitions can vary dramatically from period to period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult. References to sales volume refer to the impact of both price and unit sales. 22-------------------------------------------------------------------------------- Table of Contents Operating profit margins were 17.9% for the three months ended June 27, 2014 as compared to 17.8% in the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 45 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 35 basis points Operating profit margins were 17.4% for the six months ended June 27, 2014 as compared to 17.1% in the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 70 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 40 basis points Business Segments The following table summarizes sales by business segment for each of the periods indicated ($ in millions): Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Test & Measurement $ 856.5 $ 855.0 $ 1,727.5 $ 1,710.4 Environmental 876.0 826.8 1,644.7 1,552.1 Life Sciences & Diagnostics 1,790.0 1,674.3 3,449.6 3,241.7 Dental 528.1 514.7 1,037.8 994.5 Industrial Technologies 913.0 866.7 1,766.7 1,683.5 Total $ 4,963.6 $ 4,737.5 $ 9,626.3 $ 9,182.2 TEST & MEASUREMENT The Company's Test & Measurement segment is a leading global provider of electronic measurement instruments, professional test tools, thermal imaging and calibration equipment used in electrical, industrial, electronic and calibration applications. Danaher offers test, measurement and monitoring products that are used in electronic design, manufacturing and advanced technology development; network monitoring, management and optimization tools; and security solutions for communications and enterprise networks. Customers for these products and services include manufacturers of electronic instruments; service, installation and maintenance professionals; manufacturers who design, develop, manufacture and deploy network equipment; and service providers who implement, maintain and manage communications networks and services. Also included in the Test & Measurement segment are the Company's mobile tool and wheel service businesses. Test & Measurement Selected Financial Data ($ in millions): Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 856.5 $ 855.0 $ 1,727.5 $ 1,710.4 Operating profit 157.8 178.4 350.5 365.7 Depreciation and amortization 33.9 33.5 67.1 67.3 Operating profit as a % of sales 18.4 % 20.9 % 20.3 % 21.4 % Depreciation and amortization as a % of sales 4.0 % 3.9 % 3.9 % 3.9 % 23-------------------------------------------------------------------------------- Table of Contents % Change % Change Three Months Six Months Ended June Ended June 27, 2014 vs. 27, 2014 vs. Comparable Comparable Components of Sales Growth 2013 Period 2013 Period Existing businesses (2.0 )% (0.5 )% Acquisitions 1.5 % 1.5 % Currency exchange rates 0.5 % - % Total - % 1.0 % Year-over-year price increases in the segment contributed 0.5% to sales growth during both the three and six month periods ended June 27, 2014 and are reflected as a component of the change in sales from existing businesses. On an overall basis, sales from existing businesses in the segment's mobile tool and wheel service businesses grew during both the three and six months ended June 27, 2014 but this growth was more than offset by sales declines in the segment's communications businesses in both periods. Sales from existing businesses in the segment's instruments businesses were essentially flat during both the three and six months ended June 27, 2014, as compared to the comparable periods of 2013, with increased year-over-year sales of calibration and thermography products, primarily due to several new product offerings, offset by softness in demand for other product categories. Demand in North America increased during the second quarter as compared to the first quarter of 2014, and offset decreased year-over-year demand in certain high-growth markets. Sales from existing businesses in the segment's communications businesses declined at a low-double digit rate during the three months and at a mid-single digit rate during the six months ended June 27, 2014, as compared to the comparable periods of 2013. During the second quarter, the business experienced sequential improvement in demand for network enterprise and network security and analysis solutions, primarily in high-growth markets. This growth was more than offset by continued lower demand for network management solutions due to delays in wireless carrier spending. The Company expects sales growth from existing businesses in the segment's communications businesses to remain negative for the remainder of 2014. Operating profit margins declined 250 basis points during the three months ended June 27, 2014 as compared to the comparable period of 2013. Year-over-year operating profit margin comparisons were unfavorably impacted by: • Lower sales volumes from existing businesses particularly with respect to high margin communications sales as well as incremental year-over-year costs associated with various new product development, sales and marketing growth investments, net of incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013 - 155 basis points • The incremental net dilutive effect in 2014 of acquired businesses - 95 basis points Operating profit margins declined 110 basis points during the six months ended June 27, 2014 as compared to the comparable period of 2013. Year-over-year operating profit margin comparisons were unfavorably impacted by: • Lower sales volumes from existing businesses particularly with respect to high margin communications sales as well as incremental year-over-year costs associated with various new product development, sales and marketing growth investments, net of incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013 - 10 basis points • The incremental net dilutive effect in 2014 of acquired businesses - 100 basis points ENVIRONMENTAL The Company's Environmental segment provides products that help protect the water supply and air quality by serving two primary markets: water quality and retail/commercial petroleum. Danaher's 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 water, potable water, wastewater, groundwater and ocean water in residential, commercial, industrial and natural resource applications. Danaher's retail/commercial petroleum business is a leading worldwide provider of solutions and services focused on fuel dispensing, remote fuel management, point-of-sale systems, payment systems, environmental compliance, vehicle tracking and fleet management. 24-------------------------------------------------------------------------------- Table of Contents Environmental Selected Financial Data ($ in millions): Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 876.0 $ 826.8 $ 1,644.7 $ 1,552.1 Operating profit 183.8 178.9 329.4 314.0 Depreciation and amortization 23.0 13.5 41.0 26.7 Operating profit as a % of sales 21.0 % 21.6 % 20.0 % 20.2 % Depreciation and amortization as a % of sales 2.6 % 1.6 % 2.5 % 1.7 % % Change % Change Three Months Six Months Ended June Ended June 27, 2014 vs. 27, 2014 vs. Comparable Comparable Components of Sales Growth 2013 Period 2013 Period Existing businesses 3.5 % 4.0 % Acquisitions 2.0 % 2.0 % Currency exchange rates 0.5 % - % Total 6.0 % 6.0 % Year-over-year price increases in the segment contributed 0.5% and 1.0% to sales growth during the three and six month periods ended June 27, 2014, respectively, and are reflected as a component of the change in sales from existing businesses. Sales from existing businesses in the segment's water quality businesses grew at a mid-single digit rate during both the three and six months ended June 27, 2014 as compared to the comparable periods of 2013. Sales growth in the analytical instrumentation business was led primarily by continued strong sales of consumables and related service in North America and China, and to a lesser extent in Western Europe. Sales in the business' chemical treatment solutions product line grew on a year-over-year basis for both the three and six month periods due primarily to continued sales force investments in the U.S. market, and to a lesser extent, continued international expansion. Year-over-year sales from existing businesses in the business' ultraviolet water disinfection product line declined during both the three and six month periods ended June 27, 2014 due to continued weak demand in municipal end markets, primarily in North America and Western Europe. Sales from existing businesses in the segment's retail petroleum equipment businesses grew at a low-single digit rate during both the three and six month periods ended June 27, 2014 as compared to the comparable periods of 2013. On a year-over-year basis, the business experienced strong increase in demand in most major geographies during both the three and six month periods for its point-of-sale systems, service and vapor recovery products. This growth was partially offset by lower year-over-year sales of payment systems in Western Europe for the three months ended June 27, 2014, as well as a decline in demand for dispensers in both periods, primarily in North America. Operating profit margins declined 60 basis points during the three months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 40 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 100 basis points 25-------------------------------------------------------------------------------- Table of Contents Operating profit margins declined 20 basis points during the six months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 90 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 110 basis points LIFE SCIENCES & DIAGNOSTICS The Company's diagnostics businesses offer a broad range of analytical instruments, reagents, consumables, software and services that hospitals, physician's offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions. The Company's life sciences businesses 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. Life Sciences & Diagnostics Selected Financial Data ($ in millions): Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 1,790.0 $ 1,674.3 $ 3,449.6 $ 3,241.7 Operating profit 282.7 240.7 502.4 440.0 Depreciation and amortization 133.2 127.9 262.0 253.1 Operating profit as a % of sales 15.8 % 14.4 % 14.6 % 13.6 % Depreciation and amortization as a % of sales 7.4 % 7.6 % 7.6 % 7.8 % % Change % Change Three Months Six Months Ended June Ended June 27, 2014 vs. 27, 2014 vs. Comparable Comparable Components of Sales Growth 2013 Period 2013 Period Existing businesses 5.0 % 4.5 % Acquisitions 1.5 % 2.0 % Currency exchange rates 0.5 % - % Total 7.0 % 6.5 % Year-over-year price increases in the segment contributed 0.5% to sales growth during both the three and six month periods ended June 27, 2014 and are reflected as a component of the change in sales from existing businesses. Sales from existing businesses in the segment's diagnostics business grew at a mid-single digit rate during both the three and six month periods ended June 27, 2014 as compared to the comparable periods of 2013, primarily due to strong demand in the acute care and pathology diagnostic businesses and, to a lesser extent, the clinical business. Demand in the clinical business increased in both periods on a year over-year-basis led by strong demand in China and other high-growth markets, partly offset by year-over-year declines in demand in Europe. The clinical business in North America reported year-over-year growth during the second quarter of 2014 as a result of continued improvements in service and delivery and the impact of new product offerings. Year-over-year sales growth in the acute care diagnostic business in both periods was driven primarily by continued strong global consumable sales related to the installed base of acute care instruments. Geographically, this business' year-over-year sales growth was led by China, the Middle East and Japan. Improving year-over-year demand for the business' products in North America and Western Europe during the three months ended June 27, 2014 also contributed to sales growth. Increased demand for advanced staining systems and consumables drove the majority of the year-over-year sales growth in the pathology diagnostics business. Geographically, sales growth was strong in China and other high-growth markets in the three and six month periods ended June 27, 2014. 26-------------------------------------------------------------------------------- Table of Contents Sales from existing businesses in the segment's life sciences businesses grew at a mid-single digit rate during both the three and six month periods ended June 27, 2014 as compared to the comparable periods of 2013, due primarily to continued strong demand for the business' recently introduced products. Sales of the business' broad range of mass spectrometers continued to grow on a year-over-year basis in both periods led by North America and Europe. Sales of confocal and stereo microscopy products increased on a year-over-year basis in both periods due to strong demand in North America, Western Europe and high-growth markets. The business' flow cytometry and sample preparation product lines also contributed to the year-over-year growth in both periods, with growth primarily in North America and Western Europe. Operating profit margins increased 140 basis points during the three months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 145 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 5 basis points Operating profit margins increased 100 basis points during the six months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 115 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 15 basis points DENTAL The Company's Dental segment is a leading worldwide provider of a broad range of dental consumables, equipment and services that are used to diagnose, treat and prevent disease and ailments of the teeth, gums and supporting bone, and to improve the aesthetics of the human smile. The Company is dedicated to driving technological innovations that help dental professionals improve clinical outcomes and enhance productivity. Dental Selected Financial Data ($ in millions): Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 528.1 $ 514.7 $ 1,037.8 $ 994.5 Operating profit 77.9 78.8 153.4 141.7 Depreciation and amortization 20.5 20.9 41.0 41.8 Operating profit as a % of sales 14.8 % 15.3 % 14.8 % 14.3 % Depreciation and amortization as a % of sales 3.9 % 4.1 % 4.0 % 4.2 % % Change % Change Three Months Six Months Ended June Ended June 27, 2014 vs. 27, 2014 vs. Comparable Comparable Components of Sales Growth 2013 Period 2013 Period Existing businesses 2.0 % 4.0 % Acquisitions - % - % Currency exchange rates 0.5 % 0.5 % Total 2.5 % 4.5 % 27-------------------------------------------------------------------------------- Table of Contents Year-over-year price increases in the segment had a negligible impact on sales during both the three and six month periods ended June 27, 2014. During the second quarter of 2014, sales grew on a year-over-year basis as a result of increased demand for imaging products, instruments and handpieces and implant products, along with very modest growth in dental consumables. Geographically, sales growth in the quarter was driven by strong demand in Europe, China and other high-growth markets and contracted somewhat in Japan following that country's April 1, 2014 value added tax rate increase. During the six month period sales grew on a year-over-year basis in all major product categories and across all major geographies. Operating profit margins declined 50 basis points during the three months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • The incremental net accretive effect in 2014 of acquired businesses - 5 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • Lower year-over-year growth in higher margin consumables and incremental year-over-year costs associated with various new product development, sales and marketing growth investments, net of higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013 - 55 basis points Operating profit margins increased 50 basis points during the six months ended June 27, 2014 as compared to the comparable period of 2013. Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments, favorably impacted operating profit margin comparisons. INDUSTRIAL TECHNOLOGIES The Company's Industrial Technologies segment is a leading global provider of equipment, consumables and software for various printing, marking, coding, design and color management applications on consumer and industrial products. The segment is also a leading global provider of electromechanical motion control solutions for the industrial automation and packaging markets. In addition to the product identification and motion strategic lines of business, the segment also includes Danaher's sensors and controls, energetic materials and engine retarder businesses. Industrial Technologies Selected Financial Data ($ in millions): Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 913.0 $ 866.7 $ 1,766.7 $ 1,683.5 Operating profit 217.5 204.1 409.2 375.0 Depreciation and amortization 22.8 21.9 45.2 43.7 Operating profit as a % of sales 23.8 % 23.5 % 23.2 % 22.3 % Depreciation and amortization as a % of sales 2.5 % 2.5 % 2.6 % 2.6 % % Change % Change Three Months Six Months Ended June Ended June 27, 2014 vs. 27, 2014 vs. Comparable Comparable Components of Sales Growth 2013 Period 2013 Period Existing businesses 3.5 % 3.0 % Acquisitions 1.0 % 1.0 % Currency exchange rates 1.0 % 1.0 % Total 5.5 % 5.0 % Price increases in the segment contributed 1.0% to sales growth on a year-over-year basis during both the three and six month periods ended June 27, 2014, respectively, and are reflected as a component of the change in sales from existing businesses. 28-------------------------------------------------------------------------------- Table of Contents Sales from existing businesses in the segment's motion businesses grew at a low-single digit rate during the three months ended June 27, 2014 and were essentially flat during the six month period, in each case as compared to the comparable period of 2013. Improving year-over-year demand in medical related end-markets and strong growth in high-growth markets was partially offset by continued soft year-over-year demand in the technology, defense and industrial automation related end-markets and the impact of exiting certain low-margin original equipment manufacturers product lines. Sales from existing businesses in the segment's product identification businesses grew at a low-single digit rate during both the three and six month periods ended June 27, 2014 as compared to the comparable periods of 2013. Continued increased demand for marking and coding equipment and related consumables as well as packaging and color solutions in most major end-markets was partially offset by continued lower year-over-year demand in consumer electronics related equipment. Sales from existing businesses in the segment's other businesses collectively grew at a high-single digit rate during both the three and six month periods ended June 27, 2014 as compared to the comparable periods of 2013, primarily due to continued strong demand in the segment's engine retarder business, and to a lesser extent, improving demand in the segment's sensors and controls businesses. Operating profit margins increased 30 basis points during the three months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 45 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 15 basis points Operating profit margins increased 90 basis points during the six months ended June 27, 2014 as compared to the comparable period of 2013. The following factors impacted year-over-year operating profit margin comparisons. 2014 vs. 2013 operating profit margin comparisons were favorably impacted by: • Higher 2014 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and continuing productivity improvement initiatives taken in 2013, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments - 110 basis points 2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by: • The incremental net dilutive effect in 2014 of acquired businesses - 20 basis points COST OF SALES AND GROSS PROFIT ($ in millions) Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 4,963.6 $ 4,737.5 $ 9,626.3 $ 9,182.2 Cost of sales (2,343.4 ) (2,242.0 ) (4,553.2 ) (4,361.0 ) Gross profit 2,620.2 2,495.5 5,073.1 4,821.2 Gross profit margin 52.8 % 52.7 % 52.7 % 52.5 % The year-over-year increase in gross profit margins during both the three and six month periods ended June 27, 2014 as compared to the comparable periods in 2013, is due primarily to the favorable impact of higher year-over-year sales volumes, incremental year-over-year cost savings associated with 2013 restructuring activities and continued productivity improvements. 29-------------------------------------------------------------------------------- Table of Contents OPERATING EXPENSES ($ in millions) Three Months Ended Six Months Ended June 27, 2014 June 28, 2013 June 27, 2014 June 28, 2013 Sales $ 4,963.6 $ 4,737.5 $ 9,626.3 $ 9,182.2 Selling, general and administrative ("SG&A") expenses 1,394.5 1,339.7 2,745.1 2,638.1 Research and development ("R&D") expenses 336.4 312.2 649.8 608.6 SG&A as a % of sales 28.1 % 28.3 % 28.5 % 28.7 % R&D as a % of sales 6.8 % 6.6 % 6.8 % 6.6 % Selling, general and administrative expenses as a percentage of sales declined 20 basis points on a year-over-year basis for both the three and six month periods ended June 27, 2014 compared with the comparable periods of 2013. Incremental year-over-year increases in investments in sales and marketing growth initiatives were more than offset by increased leverage of the Company's general and administrative cost base resulting from higher 2014 sales and incremental year-over-year cost savings associated with 2013 restructuring activities. Research and development expenses (consisting principally of internal and contract engineering personnel costs) as a percentage of sales increased 20 basis points on a year-over-year basis during both the three and six months ended June 27, 2014 as compared to the comparable periods in 2013. Incremental year-over-year increases in investments in the Company's new product development initiatives were the primary contributors to this increase. INTEREST COSTS AND FINANCING For a discussion of the Company's outstanding indebtedness, refer to Note 5 of the Consolidated Condensed Financial Statements. Interest expense of $33 million and $66 million for the three and six months ended June 27, 2014, respectively, was $6 million and $13 million lower than the comparable periods of 2013. The decrease in interest expense results primarily from the repayment of the €500 million principal amount of Eurobond notes due 2013 and the $300 million principal amount of floating rate senior notes due 2013 upon maturity in July and June 2013, respectively. INCOME TAXES The Company's effective tax rate for the three and six months ended June 27, 2014 was 23.0% and 23.4%, respectively, as compared to 23.5% and 24.3% for the three and six months ended June 28, 2013, respectively. The Company's effective tax rate for 2014 and 2013 differs from the U.S. federal statutory rate of 35.0% due principally to the Company's earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate. The effective tax rate for the three and six months ended June 27, 2014 includes tax benefits in foreign tax jurisdictions for release of valuation allowances and expiration of statutes of limitation, partially offset by audit settlements in various tax jurisdictions. The Company conducts business globally and files numerous consolidated and separate income tax returns in the United States federal, state and foreign jurisdictions. The countries in which the Company has a significant presence that have significantly lower statutory tax rates than the United States include China, Denmark, Germany and the United Kingdom. The Company's ability to obtain a tax benefit from lower statutory tax rates outside of the United States is dependent on its levels of taxable income in these foreign countries. The Company believes that a change in the statutory tax rate of any individual foreign country would not have a material effect on the Company's financial statements given the geographic dispersion of the Company's taxable income. The Company and its subsidiaries are routinely examined by various domestic and international taxing authorities. The Internal Revenue Service ("IRS") has completed examinations of certain of the Company's federal income tax returns through 2009 and is currently examining the federal income tax returns for 2010 and 2011. In addition, the Company has subsidiaries in Belgium, Brazil, Canada, Denmark, France, Finland, Germany, India, Italy, Japan, Norway, Singapore, Sweden, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2012. 30-------------------------------------------------------------------------------- Table of Contents Tax authorities in Denmark and Germany have raised significant issues related to the deductibility and taxability of interest accrued by certain of the Company's subsidiaries. On December 10, 2013, the Company received assessments from the Danish tax authority ("SKAT") totaling approximately DKK 1.1 billion (approximately $205 million based on exchange rates as of June 27, 2014) imposing withholding tax and interest thereon relating to interest accrued in Denmark on borrowings from certain of the Company's subsidiaries for the years 2004-2009. If the SKAT claims are successful, it is likely that the Company would be assessed additional amounts through June 2014 totaling approximately DKK 825 million (approximately $150 million based on exchange rates as of June 27, 2014) as well as future interest on the disputed withholding tax for subsequent periods prior to such a determination. Discussions with the German tax authorities are ongoing and final assessments have not been issued. Management believes the positions the Company has taken in both Denmark and Germany are in accordance with the relevant tax laws and intends to vigorously defend its positions, including contesting the SKAT assessment; however, the ultimate resolution of these matters is uncertain, could take many years, and individually or in the aggregate could result in a material adverse impact to the Company's financial statements, including its effective tax rate. The effective tax rate for the second half of 2014 is forecasted to be approximately 24.0% based on the projected mix of earnings before tax by jurisdiction, excluding the impact of any matters that would be treated as "discrete." The actual mix of earnings by jurisdiction could fluctuate from the Company's projection which would impact the Company's effective tax rate for the period. In addition, the tax effects of discrete items, including accruals related to tax contingencies, the resolution of worldwide tax matters, tax audit settlements, statute of limitations expirations and changes in tax regulations, are reflected in the period in which they occur. As a result, it is reasonably possible that the actual effective tax rate used for financial reporting purposes will change in future periods. INFLATION The effect of inflation on the Company's revenues and net earnings was not significant in the three and six month periods ended June 27, 2014. LIQUIDITY AND CAPITAL RESOURCES Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company continues to generate substantial cash from operating activities and believes that its operating cash flow and other sources of liquidity will be sufficient to allow it to continue investing in existing businesses, consummating strategic acquisitions, paying interest and servicing debt and managing its capital structure on a short and long-term basis. Following is an overview of the Company's cash flows and liquidity for the six months ended June 27, 2014: Overview of Cash Flows and Liquidity Six Months Ended ($ in millions) June 27, 2014 June 28, 2013 Total operating cash flows $ 1,502.9 $ 1,535.7 Cash paid for acquisitions $ (606.7 ) $ (322.6 ) Payments for additions to property, plant and equipment (278.6 ) (252.5 ) Proceeds from sale of investments 25.0 692.0 All other investing activities 11.2 (5.9 ) Net cash (used in) provided by investing activities $ (849.1 ) $ 111.0 Proceeds from the issuance of common stock $ 60.9 $ 110.0 Payment of dividends (87.4 ) (17.3 ) Net repayments of borrowings (maturities of 90 days or less) (13.4 ) (768.0 ) Repayments of borrowings (maturities longer than 90 days) (403.6 ) (310.4 ) Net cash used in financing activities $ (443.5 ) $ (985.7 ) 31-------------------------------------------------------------------------------- Table of Contents • Operating cash flows decreased $33 million, or 2%, during the first half of 2014 as compared to the first half of 2013, due primarily to year-over-year changes in the amount and timing of collection of trade accounts receivable and payments of trade accounts payables. In addition, operating cash flows for the first half of 2013 benefited from $67 million of dividends received related to earnings of the Apex joint venture. • Cash paid for acquisitions constituted the most significant use of cash during the first half of 2014. The Company acquired fourteen businesses during the first half of 2014 for total consideration (net of cash acquired) of $607 million. • The Company repaid the $400 million principal amount of 1.3% senior notes due 2014 upon their maturity in June 2014. The Company also reduced outstanding borrowings with maturities of 90 days or less, primarily commercial paper borrowings, by $13 million during the first half of 2014. • As of June 27, 2014, the Company held $3.3 billion of cash and cash equivalents. Operating Activities Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impact reported cash flows. Operating cash flows from continuing operations were $1.5 billion for the first half of 2014, a decrease of $33 million, or 2%, as compared to the comparable period of 2013. The year-over-year change in operating cash flows from 2013 to 2014 was primarily attributable to the following factors: • The aggregate of trade accounts receivable, inventories and trade accounts payable used $269 million in operating cash flows during the first half of 2014, compared to $59 million used in the comparable period of 2013. The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories and trade accounts payable depends upon how effectively the Company manages the cash conversion cycle, which effectively represents the number of days that elapse from the day it pays for the purchase of raw materials and components to the collection of cash from its customers and can be significantly impacted by the timing of collections and payments in a period. The Company expects the impact of these operating factors to normalize in the balance of 2014. • The first half of 2013 operating cash flows included $67 million of dividends received related to earnings of the Apex joint venture, which was sold in 2013. These dividends increased the first half of 2013 operating cash flows but did not repeat in 2014 due to the sale. • 2014 operating cash flows benefited from higher net earnings, excluding the impact of the gain on the sale of the Apex joint venture and other non-operating income, as compared to the comparable 2013 period. While the gain on the sale of Apex was included in 2013 earnings from continuing operations, the proceeds from this sale are shown in the investing activities section of the Statement of Cash Flows and therefore do not contribute to operating cash flows. • Net earnings for the first half of 2014 reflected an increase of $24 million of depreciation and amortization expense as compared to the comparable period of 2013. Amortization expense primarily relates to the amortization of intangible assets acquired in connection with acquisitions. Depreciation expense relates to both the Company's manufacturing and operating facilities as well as instrumentation leased to customers under operating-type lease arrangements. Depreciation and amortization are non-cash expenses that decrease earnings without a corresponding impact to operating cash flows. Investing Activities Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures, including instruments leased to customers, and cash proceeds from divestitures of businesses or assets. Net cash used in investing activities was $849 million during the first half of 2014 compared to $111 million of cash provided in the first half of 2013. For a discussion of the Company's acquisitions during the first half of 2014 refer to "-Overview." In the first half of 2013, the Company generated $692 million of cash from the sale of the Apex joint venture. 32-------------------------------------------------------------------------------- Table of Contents Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, improving information technology systems and the manufacture of instruments that are used in operating-type lease arrangements that certain of the Company's businesses enter into with customers. Capital expenditures increased $26 million or 10% on a year-over-year basis for the first half of 2014 compared to 2013 due primarily to increases in equipment leased to customers. For full year 2014, the Company expects capital spending to approximate $650 million, though actual expenditures will ultimately depend on business conditions. Financing Activities and Indebtedness Cash flows from financing activities consist primarily of proceeds from the issuance of commercial paper, common stock and debt, excess tax benefits from stock-based compensation, payments of principal on indebtedness, payments for repurchases of common stock and payments of dividends to shareholders. Financing activities used cash of $444 million during the first half of 2014 due primarily to the repayment of the $400 million principal amount of 1.3% senior notes due 2014 upon their maturity in June 2014. For a description of the Company's outstanding debt as of June 27, 2014, refer to Note 5 of the Consolidated Condensed Financial Statements. As of June 27, 2014, the Company was in compliance with all of its debt covenants. The Company satisfies any short-term liquidity needs that are not met through operating cash flow and available cash primarily through issuances of commercial paper under its U.S. and Euro commercial paper programs. As of June 27, 2014, borrowings outstanding under the Company's U.S. commercial paper program had a weighted average annual interest rate of 0.1% and a weighted average remaining maturity of approximately twelve days. There was no commercial paper outstanding under the Euro commercial paper program as of June 27, 2014. As commercial paper obligations mature, the Company anticipates issuing additional short-term commercial paper obligations to refinance all or part of these borrowings. As of June 27, 2014, the Company has classified its borrowings outstanding under the commercial paper program as long-term debt in the accompanying Consolidated Condensed Balance Sheet as the Company had the intent and ability, as supported by availability under the Credit Facility referenced below, to refinance these borrowings for at least one year from the balance sheet date. Credit support for the commercial paper program is provided by a $2.5 billion unsecured multi-currency revolving credit facility with a syndicate of banks that expires on July 15, 2016 (the "Credit Facility"). The Credit Facility can also be used for working capital and other general corporate purposes. As of June 27, 2014, no borrowings were outstanding under the Credit Facility and the Company was in compliance with all covenants under the facility. In addition to the Credit Facility, the Company has entered into reimbursement agreements with various commercial banks to support the issuance of letters of credit. The Company has filed a "well-known seasoned issuer" shelf registration statement on Form S-3 with the SEC that registers an indeterminate amount of debt securities, common stock, preferred stock, warrants, depositary shares, purchase contracts and units for future issuance. The Company expects to use net proceeds realized by the Company from future securities sales off this shelf for general corporate purposes, including without limitation repayment or refinancing of debt or other corporate obligations, acquisitions, capital expenditures, share repurchases and dividends, and working capital. Neither the Company nor any "affiliated purchaser" repurchased any shares of Company common stock during the three or six month periods ended June 27, 2014. On July 16, 2013, the Company's Board of Directors approved a new repurchase program (the "Repurchase Program") authorizing the repurchase of up to 20 million shares of the Company's common stock from time to time on the open market or in privately negotiated transactions. As of June 27, 2014, 20 million shares remained available for repurchase pursuant to the Repurchase Program. Aggregate cash payments for dividends during the first half of 2014 were $87 million. This is higher than in the comparable period of 2013, as the Company increased its quarterly dividend in the first quarter of 2014 and because the Company made no cash payments for dividends during the first quarter of 2013. The Company's Board had determined to accelerate the quarterly dividend payment that normally would have been paid in January 2013 and paid it in December 2012. In the second quarter of 2014, the Company declared a regular quarterly dividend of $0.10 per share payable on July 25, 2014 to holders of record on June 27, 2014. 33-------------------------------------------------------------------------------- Table of Contents Cash and Cash Requirements As of June 27, 2014, the Company held $3.3 billion of cash and cash equivalents that were invested in highly liquid investment grade debt instruments with a maturity of 90 days or less with an approximate weighted average annual interest rate of 0.4%. Of this amount, $795 million was held within the United States and $2.5 billion was held outside of the United States. The Company will continue to have cash requirements to support working capital needs, capital expenditures and acquisitions, to pay interest and service debt, pay taxes and any related interest or penalties, fund its restructuring activities and pension plans as required, repurchase shares of the Company's common stock, pay dividends to shareholders and support other business needs. The Company generally intends to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions, the Company may also borrow under its commercial paper program or the Credit Facility, enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under its commercial paper program and/or access the capital markets. The Company also may from time to time access the capital markets to take advantage of favorable interest rate environments or other market conditions. While repatriation of some cash held outside the United States may be restricted by local laws, most of the Company's foreign cash balances could be repatriated to the United States but, under current law, could be subject to U.S federal income taxes, less applicable foreign tax credits. For most of its foreign subsidiaries, the Company makes an election regarding the amount of earnings intended for indefinite reinvestment, with the balance available to be repatriated to the United States. A deferred tax liability has been accrued for the funds that are available to be repatriated to the United States. No provisions for U.S. income taxes have been made with respect to earnings that are planned to be reinvested indefinitely outside the United States, and the amount of U.S. income taxes that may be applicable to such earnings is not readily determinable given the various tax planning alternatives the Company could employ if it repatriated these earnings. The cash that the Company's foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. As of June 27, 2014, management believes that it has sufficient liquidity to satisfy its cash needs, including its cash needs in the United States. During 2014, the Company's cash contribution requirements for its U.S. and its non-U.S. defined benefit pension plans are expected to be approximately $50 million and $55 million, respectively. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan's funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors. CRITICAL ACCOUNTING POLICIES There were no material changes during the three months ended June 27, 2014 to the items that the Company disclosed as its critical accounting policies and estimates in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2013 Annual Report on Form 10-K. |