DISCONTINUED OPERATIONS, DANAHER SEPARATION AND OTHER DISPOSITIONS

Discontinued Operations

In July 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 million shares of Danaher common stock (valued at approximately $2.3 billion based on the closing price of Danaher’s common stock 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 $767 million, or $1.08 per diluted share, in its 2015 results in connection with the closing of this transaction representing the value of the 26 million shares of Company common stock tendered for the communications business in excess of the carrying value of the business’ net assets. This gain was included in the results of discontinued operations for the year ended December 31, 2015 and included $47 million of charges recorded in the fourth quarter of 2015 resulting from the reconciliation of deferred income tax balances used in calculating the gain recorded in the third quarter of 2015. The communications business had revenues of $346 million in 2015 prior to the disposition and $760 million in 2014.

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 and 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.

The key components of income from discontinued operations for the years ended December 31 were as follows ($ in millions):



	2015			2014			2013
Sales	$	345.7		$	759.8		$	834.9
Cost of sales	(97.7		)	(209.9		)	(219.3		)
Selling, general and administrative expenses	(152.1		)	(308.0		)	(315.7		)
Research and development expenses	(79.9		)	(157.2		)	(145.5		)
Interest expense	(1.8		)	(3.6		)	(4.7		)
Income from discontinued operations before income taxes	14.2			81.1			149.7
Gain on disposition of discontinued operations before income taxes	760.5			—			—
Earnings from discontinued operations before income taxes	774.7			81.1			149.7
Income taxes	(16.0		)	(25.8		)	(45.3		)
Earnings from discontinued operations, net of income taxes	$	758.7		$	55.3		$	104.4

The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company’s accompanying Consolidated Balance Sheet as of December 31, 2014 ($ in millions):



Assets:
Trade accounts receivable, net	$	188.0
Inventories	48.7
Property, plant and equipment, net	31.1
Goodwill	1,291.0
Other intangible assets, net	309.7
Other assets	15.0
Total assets, discontinued operations	$	1,883.5
Liabilities:
Trade accounts payable	$	50.0
Accrued expenses and other liabilities	258.0
Other long-term liabilities	159.6
Total liabilities, discontinued operations	$	467.6

Danaher Separation

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

•

a multi-industry, science and technology growth company that will retain the Danaher name and consist of Danaher’s existing Life Sciences & Diagnostics (including Pall) and Dental segments as well as the water quality and product identification businesses, which in aggregate generated approximately $16.5 billion of revenue in 2015 (adjusted to include the full annual revenues of Pall for 2015); and


•	a diversified industrial growth company (Fortive Corporation (“Fortive”)) that will consist of Danaher’s existing Test & Measurement segment, Industrial Technologies segment (excluding the product identification businesses) and retail/commercial petroleum business, which in aggregate generated approximately $6.0 billion of revenue in 2015.

The transaction is expected to occur through a tax-free separation. The Company is targeting to complete the Separation in the third quarter of 2016, subject to final approval by Danaher’s Board of Directors and other customary conditions. The Separation will be in the form of a pro rata distribution to Danaher shareholders of 100% of the outstanding shares of Fortive.

Other Dispositions

In August 2014, the Company completed the divestiture of its electric vehicle systems (“EVS”)/hybrid product line for a sale price of $87 million in cash. This product line, which was part of the Industrial Technologies segment, had revenues of approximately $60 million in 2014 prior to the divestiture and approximately $100 million in 2013. Operating results of the product line were not significant to segment or overall Company reported results. The Company recorded a pretax gain on the sale of the product line of $34 million ($26 million after-tax or $0.04 per diluted share) in its third quarter 2014 results. Subsequent to the sale, the Company has no continuing involvement in the EVS/hybrid product line. In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which the Company adopted at the beginning of the third quarter of 2014, the divestiture of the EVS/hybrid product line has not been classified as a discontinued operation in this Form 10-K since the disposition does not represent a strategic shift that will have a major effect on the Company’s operations and financial statements.

On July 4, 2010, the Company entered into a joint venture with Cooper Industries, plc (“Cooper”), combining certain of the Company’s hand tool businesses with Cooper’s Tools business to form a new entity called Apex Tool Group, LLC (“Apex”). Each of Cooper and the Company had owned a 50% interest in Apex, had an equal number of representatives on Apex’s Board of Directors and neither joint venture partner controlled the significant operating and financing activities of Apex. The Company had accounted for its investment in the joint venture based on the equity method of accounting.

In February 2013, the Company and Cooper sold Apex to an unrelated third party for approximately $1.6 billion. The Company received $797 million from the sale, consisting of cash of $759 million (including $67 million of dividends received prior to closing) and a note receivable of $38 million (which has been subsequently collected). The Company recognized a pretax gain of $230 million ($144 million after-tax or $0.20 per diluted share) in its first quarter 2013 results in connection with this transaction which is included as a component of other income in the accompanying Consolidated Statement of Earnings.

The gain is computed as the difference between the book value of the Company’s investment in Apex at the time of sale and the fair value of the consideration received in exchange, as indicated in the table below ($ in millions):



Fair value of consideration received:
Cash, including $66.6 of dividends received during 2013 prior to closing of sale	$	758.6
Note receivable	38.5
Total fair value of consideration received	797.1
Less: book value of investment in unconsolidated joint venture	545.6
Less: other related costs and expenses	21.7
Pretax gain on sale of unconsolidated joint venture	229.8
Income tax expense	86.2
After-tax gain on sale of unconsolidated joint venture	$	143.6

The Company’s share of the 2013 earnings generated by Apex prior to the closing of the sale was insignificant. Subsequent to the sale of its investment in Apex, the Company has no continuing involvement in Apex’s operations.