Danaher Separation And Discontinued Operations

3 Months Ended

Apr. 01, 2016

Discontinued Operations and Disposal Groups [Abstract]

Danaher Separation And Discontinued Operations

DANAHER SEPARATION AND DISCONTINUED OPERATIONS

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 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 and $3.9 billion of revenue in 2015 (adjusted to include the full annual revenues of Pall for 2015) and the first quarter of 2016, respectively (2015 revenues for these businesses excluding pre-acquisition Pall revenue were approximately $14.4 billion); 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 $6.2 billion and $1.5 billion of revenue in 2015 and the first quarter of 2016, respectively.

The transaction is expected to occur through a tax-free spin-off. 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.

As a result of planning for the Separation, the Company incurred $9 million in separation-related costs (primarily consulting and information technology-related) during the three month period ended April 1, 2016 which were recorded in selling, general and administrative expenses in the Consolidated Condensed Statement of Earnings. The Company also incurred approximately $6 million of discrete income tax expense related to certain legal entity reorganizations associated with the Separation during the three month period ended April 1, 2016.

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 consolidated condensed 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. 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. Fortive will be responsible for providing these services following the separation of Fortive from Danaher.

The key components of income from discontinued operations for the three month period ended April 3, 2015 were as follows ($ in millions):

Sales	$	178.6
Cost of sales	(46.8		)
Selling, general, and administrative expenses	(73.0		)
Research and development expenses	(39.7		)
Interest expense	(0.9		)
Earnings from discontinued operations before income taxes	18.2
Income taxes	(6.4		)
Earnings from discontinued operations, net of income taxes	$	11.8