Discontinued Operations, Danaher Separation And Other Disposition

9 Months Ended

Oct. 02, 2015

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations And Danaher Separation

DISCONTINUED OPERATIONS, DANAHER SEPARATION AND OTHER DISPOSITION

Discontinued Operations

On July 14, 2015, the Company consummated the split-off of the majority of its Test & Measurement segment's communications business (other than the data communications cable installation business and the communication service provider business of Fluke Networks which are now part of the instruments business of the Company's Test & Measurement segment) to Danaher shareholders who elected to exchange Danaher shares for ownership interests in the communications business, and the subsequent merger of the communications business with a subsidiary of NetScout Systems, Inc. (“NetScout”). Danaher shareholders who participated in the exchange offer tendered 26.0 million shares of Danaher common stock, (approximately $2.3 billion on the date of tender) and received 62.5 million shares of NetScout common stock which represented approximately 60% of the shares of NetScout common stock outstanding following the combination.

The accounting requirements for reporting the disposition of the communications business as a discontinued operation were met when the separation and merger were completed. Accordingly, the accompanying consolidated financial statements for all periods presented reflect this business as discontinued operations. The Company allocated a portion of the consolidated interest expense to discontinued operations based on the ratio of the discontinued business' net assets to the Company's consolidated net assets. The Company recorded an aggregate after-tax gain on the disposition of this business of $813 million, or $1.16 per diluted share, in its third quarter 2015 results in connection with the closing of this transaction representing the value of the 26.0 million shares tendered for the communications business in excess of the carrying value of the business' net assets. The communications business had revenues of approximately $346 million in 2015 prior to the disposition and approximately $760 million in 2014. Operating results prior to the disposition during the three month period ended October 2, 2015 were not significant and are reflected as a component of the gain on disposition.

The key components of income from discontinued operations were as follows ($ in millions):

	Three Months Ended					Nine Months Ended
	October 2, 2015		September 26, 2014			October 2, 2015			September 26, 2014
Net sales	$	—	$	163.2		$	345.7		$	566.8
Operating expenses	—		(163.6		)	(329.7		)	(502.6		)
Allocated interest expense	—		(0.9		)	(1.8		)	(2.8		)
Income before taxes	—		(1.3		)	14.2			61.4
Income tax (benefit) expense	—		0.6			(22.2		)	(18.3		)
(Loss) income from discontinued operations	—		(0.7		)	(8.0		)	43.1
Gain on disposition, including $6.2 of related income tax benefit	813.3		—			813.3			—
Earnings from discontinued operations, net of income taxes	$	813.3	$	(0.7	)	$	805.3		$	43.1

The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company's balance sheet ($ in millions):

	October 2, 2015		December 31, 2014
Assets:
Accounts receivable, net	$	—	$	188.1
Inventories	—		48.7
Prepaid expenses and other	—		14.9
Property, plant and equipment	—		31.1
Goodwill and other intangibles, net	—		1,600.7
Total assets, discontinued operations	$	—	$	1,883.5
Liabilities:
Trade accounts payable	$	—	$	50.0
Accrued expenses and other liabilities	42.4		417.6
Total liabilities, discontinued operations	$	42.4	$	467.6

The Company has an ongoing Transition Services Agreement (“TSA”) with NetScout under which the Company will provide NetScout with certain transition services for up to 12 months following the closing date of the disposition. These services include finance & accounting, information technology, payroll processing, and other administrative services as well as certain manufacturing, supply chain, and selling activities for a portion of the transferred businesses.

Danaher Separation

On May 13, 2015, the Company announced its intention to separate into two independent publicly traded companies (the “Separation”). Consummation of the Separation will create:

• a science and technology company (“New Danaher”) that will retain the Danaher name and include businesses that generated approximately $16.5 billion in revenues (adjusted to include the revenues of Pall - refer to Note 2), in their most recently completed fiscal year; and

• a diversified industrial company (“NewCo”) that will include businesses that generated approximately $6.0 billion in revenues in their most recently completed fiscal year.

The transaction is expected to occur through a tax-free separation. The Company is targeting to complete the Separation in 2016, subject to the satisfaction of certain conditions, including obtaining final approval from the Danaher Board of Directors, satisfactory completion of financing, receipt of tax opinions, receipt of favorable rulings from the Internal Revenue Service and receipt of other regulatory approvals.

Other Disposition

Refer to Note 10 for information related to the $34 million gain on the Company's divestiture of its electric vehicle systems (“EVS”)/hybrid product line in the third quarter of 2014.