10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended June 27, 2003
OR
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from                to
Commission File Number:  1-8089

DANAHER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware	59-1995548
(State of incorporation)	(I.R.S. Employer Identification number)
2099 Pennsylvania Avenue, NW Washington, D.C.	20006
(Address of Principal Executive Offices)	(Zip Code)
Registrant’s telephone number, including area code: 202-828-0850

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  ý No  o

The number of shares of common stock outstanding at July 11, 2003 was 153,158,133.

DANAHER CORPORATION

INDEX

FORM 10-Q

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets at June 27, 2003 and December 31, 2002	1
	Consolidated Condensed Statements of Earnings for the three months and six months ended June 27, 2003 and June 28, 2002	2
	Consolidated Condensed Statements of Stockholders’ Equity for the six months ended June 27, 2003	3
	Consolidated Condensed Statements of Cash Flow for the six months ended June 27, 2003 and June 28, 2002	4
	Notes to Consolidated Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II – OTHER INFORMATION		29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 6.	Exhibits and Reports on Form 8-K	30
	Signatures	32

DANAHER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(000’s omitted)

	June 27, 2003			December 31, 2002
	(unaudited)			(Note 1)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,068,110		$	810,463
Trade accounts receivable, net	784,062			759,028
Inventories:
Finished goods	197,779			165,061
Work in process	117,183			119,872
Raw material and supplies	212,090			200,654
Total inventories	527,052			485,587
Prepaid expenses and other current assets	289,954			332,188
Total current assets	2,669,178			2,387,266
Property, plant and equipment, net of accumulated depreciation of $898,393 and $831,922, respectively	577,498			597,379
Other assets	38,573			36,796
Goodwill and other intangible assets, net	3,179,551			3,007,704
Total assets	$	6,464,800		$	6,029,145
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt	$	76,418		$	112,542
Accounts payable	415,088			366,587
Accrued expenses	820,981			786,183
Total current liabilities	1,312,487			1,265,312
Other liabilities	627,956			556,812
Long-term debt	1,249,641			1,197,422
Stockholders’ equity:
Common stock-$.01 par value	1,672			1,665
Additional paid-in capital	940,920			915,562
Accumulated other comprehensive income (loss)	(86,845		)	(105,973		)
Retained earnings	2,418,969			2,198,345
Total stockholders’ equity	3,274,716			3,009,599
Total liabilities and stockholders’ equity	$	6,464,800		$	6,029,145

See notes to consolidated condensed financial statements.

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DANAHER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(000’s omitted except per share amounts)

(unaudited)

	Three Months Ended					Six Months Ended
	June 27, 2003		June 28, 2002			June 27, 2003			June 28, 2002
Net sales	$	1,299,432	$	1,146,326		$	2,495,647		$	2,150,533
Operating costs and expenses:
Cost of sales	774,546		701,908			1,503,362			1,330,092
Selling, general and administrative expenses	323,675		277,374			624,856			516,176
Gain on sale of real estate	—		(2,531		)	(775		)	(2,531		)
Total operating expenses	1,098,221		976,751			2,127,443			1,843,737
Operating profit	201,211		169,575			368,204			306,796
Interest expense, net	13,024		11,308			24,940			22,216
Earnings before income taxes and effect of accounting change	188,187		158,267			343,264			284,580
Income taxes	63,043		54,602			114,994			98,180
Net earnings, before effect of accounting change	125,144		103,665			228,270			186,400
Effect of accounting change,  net of tax	—		—			—			(173,750		)
Net earnings	$	125,144	$	103,665		$	228,270		$	12,650
Basic earnings per share:
Net earnings before effect of accounting change	$	0.82	$	0.69		$	1.49		$	1.26
Less:  Effect of accounting change	—		—			—			(1.17		)
Net earnings	$	0.82	$	0.69		$	1.49		$	0.09
Diluted net earnings per share:
Net earnings before effect of accounting change	$	0.79	$	0.66		$	1.44		$	1.21
Less:  Effect of accounting change	—		—			—			(1.10		)
Net earnings	$	0.79	$	0.66		$	1.44		$	0.11
Average common stock and common equivalent shares outstanding:
Basic	153,185		151,274			153,031			148,223
Diluted	161,201		160,045			160,934			156,994

See notes to consolidated condensed financial statements.

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DANAHER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(000’s omitted)

(unaudited)

	Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Comprehensive Income
	Shares	Amount
Balance, December 31, 2002	166,545	$	1,665	$	915,562	$	2,198,345		$	(105,973	)
Net earnings for the period	—	—		—		228,270			—			$	228,270
Dividends declared	—	—		—		(7,646		)	—			—
Common stock issued for options exercised	619	7		25,358		—			—			—
Increase from translation of foreign financial statements	—	—		—		—			19,128			_19,128
Balance, June 27, 2003	167,164	$1,672		$	940,920	$	2,418,969		$	(86,845	)	$	247,398

See notes to consolidated condensed financial statements.

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DANAHER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

(000’s omitted)

(unaudited)

	Six Months Ended
	June 27, 2003			June 28, 2002
Cash flows from operating activities:
Net earnings from operations	$	228,270		$	12,650
Effect of change in accounting principle	—			173,750
Net earnings, before effect of accounting change	228,270			186,400
Non-cash items, depreciation and amortization	69,618			65,684
Change in accounts receivable	21,503			32,916
Change in inventories	(6,550		)	42,985
Change in accounts payable	27,205			29,292
Change in prepaid expenses and other assets	47,602			(32,306		)
Change in accrued expenses and other liabilities	61,600			68,475
Total operating cash flows	449,248			393,446
Cash flows from investing activities:
Payments for additions to property, plant, and equipment	(37,621		)	(28,241		)
Proceeds from disposals of property, plant, and equipment	6,806			11,735
Cash paid for acquisitions	(123,217		)	(879,844		)
Proceeds from divestitures	11,648			52,562
Net cash used in investing activities	(142,384		)	(843,788		)
Cash flows from financing activities:
Proceeds from issuance of common stock	14,552			487,824
Proceeds from debt borrowings	5,262			—
Debt repayments	(78,492		)	(45,084		)
Payment of dividends	(7,646		)	(6,043		)
Net cash provided by (used in) financing activities	(66,324		)	436,697
Effect of exchange rate changes on cash	17,107			12,161
Net change in cash and cash equivalents	257,647			(1,484		)
Beginning balance of cash and cash equivalents	810,463			706,559
Ending balance of cash and cash equivalents	$	1,068,110		$	705,075
Supplemental disclosures:
Cash interest payments	$	13,153		$	13,514
Cash income tax payments	$	15,265		$	7,868

See notes to consolidated condensed financial statements.

4

DANAHER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

NOTE 1.GENERAL

The consolidated condensed financial statements included herein have been prepared by Danaher Corporation (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading.  The condensed financial statements included herein should be read in conjunction with the financial statements and the notes theretoincluded in the Company’s 2002 Annual Report on Form 10-K.

In the opinion of the registrant, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company at June 27, 2003 and December 31, 2002, its results of operations for the three and six month periods ended June 27, 2003 and June 28, 2002, and its cash flows for the six months ended June 27, 2003 and June 28, 2002.

Total comprehensive income was as follows:

	2003		2002
	(millions)
Three Months	$	143.2	$	117.1
Six Months	$	247.4	$	27.4

Total comprehensive income for all periods represents net income and the change in cumulative foreign translation adjustment.  Accumulated comprehensive income (loss) also includes the effect of an additional minimum pension liability recorded in the fourth quarter of 2002 of $76.9 million, net of tax.

NOTE 2.SEGMENT INFORMATION

Segment information is presented consistently with the basis described in the 2002 Annual Report.  There has been no material change in total assets or liabilities by segment, except for 2003 acquisitions and divestitures (see Note 4).  Segment results for 2003 and 2002 are shown below:

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	Three Months Ended						Six Months Ended
	June 27, 2003			June 28, 2002			June 27, 2003			June 28, 2002
Sales:
Process/Environmental Controls	$	1,014,523		$	843,527		$	1,942,550		$	1,577,756
Tool and Components	284,909			302,799			553,097			572,777
	$	1,299,432		$	1,146,326		$	2,495,647		$	2,150,533
Operating Profit:
Process/Environmental Controls	$	164,281		$	130,228		$	302,340		$	237,672
Tool and Components	43,663			45,453			78,302			80,233
Other	(6,733		)	(6,106		)	(12,438		)	(11,109		)
	$	201,211		$	169,575		$	368,204		$	306,796

NOTE 3.EARNINGS PER SHARE

Basic EPS is calculated by dividing earnings by the weighted average number of common shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the numerator and the denominator of the basic EPS calculation for the effect of all potential dilutive common shares outstanding during the period.  Information related to the calculation of earnings per share of common stock before the effect of the Company’s first quarter 2002 goodwill write down is summarized as follows:

	Net Earnings (Numerator)		Shares (Denominator)	Per Share Amount
For the Three Months Ended June 27, 2003:
Basic EPS	$	125,144	153,185	$	.82
Adjustment for interest on convertible debentures	2,097		—
Incremental shares from assumed exercise of dilutive options	—		1,985
Incremental shares from assumed conversion of the convertible debenture	—		6,031
Diluted EPS	$	127,241	161,201	$	.79

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	Earnings (Numerator)		Shares (Denominator)	Per Share Amount
For the Three Months Ended June 28, 2002:
Basic EPS	$	103,665	151,274	$	.69
Adjustment for interest on convertible debentures	1,969		—
Incremental shares from assumed exercise of dilutive options	—		2,740
Incremental shares from assumed conversion of of convertible debentures	—		6,031
Diluted EPS	$	105,634	160,045	$	.66

	Earnings (Numerator)		Shares (Denominator)	Per Share Amount
For the Six Months Ended June 27, 2003:
Basic EPS	$	228,270	153,031	$	1.49
Adjustment for interest on convertible debentures	4,181		—
Incremental shares from assumed exercise of dilutive options	—		1,872
Incremental shares from assumed conversion of the convertible debenture	—		6,031
Diluted EPS	$	232,451	160,934	$	1.44

	Earnings (Numerator)		Shares (Denominator)	Per Share Amount
For the Six Months Ended June 28, 2002:
Basic EPS before the effect of the accounting change	$	186,400	148,223	$	1.26
Adjustment for interest on convertible debentures	3,927		—
Incremental shares from assumed exercise of dilutive options	—		2,740
Incremental shares from assumed conversion of the convertible debentures	—		6,031
Diluted EPS before the effect of the accounting change	$	190,327	156,994	$	1.21

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NOTE 4.ACQUISITIONS AND DIVESTITURES

The Company completed five business acquisitions during the six months ended June 27, 2003.  In addition, the Company acquired 12 businesses during the year ended December 31, 2002. These acquisitions have either been completed because of their strategic fit with an existing Company business or because they are of such a nature and size as to establish a new strategic platform for growth for the Company.  All of the acquisitions during this time period have been additions to the Company’s Process/Environmental Controls segment, have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s financial statements. This goodwill arises because the purchase prices for these targets reflect a number of factors including the future earnings and cash flow potential of these target companies; the multiple to earnings, cash flow and other factors at which companies similar to the target have been purchased by other acquirers; the competitive nature of the process by which we acquired the target; and because of the complementary strategic fit and resulting synergies these targets bring to existing operations.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair market value of the acquired assets and liabilities.  The Company obtains this information during due diligence and through other sources.  In the months after closing, as the Company obtains additional information about these assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair market value and more accurately allocate the purchase price.  Examples of factors and information that we use to refine the allocations include: tangible and intangible asset appraisals; cost data related to redundant facilities; employee/personnel data related to redundant functions; product line integration and rationalization information; management capabilities; and information systems compatibilities.  The Company will adjust the initial purchase price allocation as the fair value at the acquisition date of the assets and liabilities acquired are determined.  The only items considered for subsequent adjustment are items identified as of the acquisition date. The Company’s acquisitions in 2003 and 2002 have not had any significant pre-acquisition contingencies (as contemplated by SFAS No. 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises”) which were expected to have a significant effect on the purchase price allocation.

The Company also periodically disposes of existing operations that are not deemed to strategically fit with its ongoing operations or are not achieving the desired return on investment.  The following briefly describes the Company’s acquisition and divestiture activity for the six months ended June 27, 2003.  For a description of the Company’s acquisition activity for the year-ended December 31, 2002, reference is made to Note 2 to the Consolidated Financial Statements included in the 2002 Annual Report on Form 10-K.

8

The Company acquired five companies and product lines during the six-month period ended June 27, 2003 for total consideration of approximately $123 million in cash including transaction costs.  The Company also assumed debt with an aggregate fair market value of approximately $45 million in connection with these acquisitions. In general, each company is a manufacturer and assembler of environmental or instrumentation products, in market segments such as product identification, environmental and aerospace and defense. These companies were all acquired to complement existing units of the Process/Environmental Controls segment.  The aggregated annual revenues of the acquired businesses is approximately $170 million and each of these five companies individually has less than $125 million in annual revenues.  In addition, the Company sold one facility acquired in connection with a prior acquisition for approximately $11.6 million in net proceeds.  No gain or loss was recognized on the sale and the proceeds have been included in proceeds from divestitures in the accompanying consolidated condensed statements of cash flows.

The following table summarizes the aggregate estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisitions consummated during the six months ended June 27, 2003 ($ in 000’s):

Accounts receivable	$	29,755
Inventory	23,519
Property, plant and equipment	9,822
Goodwill	129,114
Other intangible assets, primarily trade names and patents	22,959
Accounts payable	(13,068		)
Other assets and liabilities, net	(34,276		)
Assumed debt	(44,608		)
Net cash consideration	$	123,217

The Company is continuing to evaluate the initial purchase price allocations for the acquisitions completed during the six months ended June 27, 2003 and will adjust the allocations as additional information relative to the estimated integration costs of the acquired businesses and the fair market values of the assets and liabilities of the businesses become known.  In addition, the Company is continuing to evaluate the purchase price allocation for the Thomson Industries acquisition completed in the fourth quarter of 2002.  The Company is continuing to evaluate Thomson’s operations to determine the cost estimates for any integration activities to be undertaken and is also waiting on cost estimates with respect to exiting various lease obligations of Thomson.  While not expected to be significant, the Company will also adjust the purchase price allocations for other businesses for changes in the estimated cost of integration activities or as additional information becomes available regarding the fair value of acquired assets for up to one year from the acquisition date.

The unaudited pro forma information for the periods set forth below gives effect to all prior acquisitions as if they had occurred at

9

the beginning of the period.  The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (unaudited, 000’s omitted except per share amounts):

	Three Months Ended				Six Months Ended
	June 27, 2003		June 28, 2002		June 27, 2003		June 28, 2002
Net sales	$	1,299,432	$	1,261,024	$	2,503,285	$	2,465,511
Net earnings before change in accounting principle	125,144		104,552		228,290		191,264
Net earnings	125,144		104,552		228,290		17,514
Diluted earnings per share before change in accounting principle	$	0.79	$	0.67	$	1.44	$	1.24
Diluted earnings per share	$	0.79	$	0.67	$	1.44	$	0.14

In connection with its acquisitions, the Company assesses and formulates a plan related to the future integration of the acquired business.  This process begins during the due diligence process and is concluded within twelve months of the acquisition.  The Company accrues estimates for certain costs, related primarily to personnel reductions and facility closures or restructurings, anticipated at the date of acquisition, in accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.”  Adjustments to these estimates are made up to 12 months from the acquisition date as plans are finalized. To the extent these accruals are not utilized for the intended purpose, the excess is recorded as a reduction of the purchase price, typically by reducing recorded goodwill balances.  Costs incurred in excess of the recorded accruals are expensed as incurred.  As indicated above, the Company is finalizing its exit plans with respect to certain of its recent acquisitions which may result in adjustments to the current accrual levels.

Accrued liabilities associated with these exit activities include the following ($ in 000’s except headcount):

	Videojet			Viridor			Gilbarco			Thomson			All Others			Total
Planned Headcount Reduction:
Balance December 31, 2002	6			42			271			936			154			1,409
Accrual related to 2003 acquisitions	—			—			—			—			555			555
Reductions in 2003	(6		)	(32		)	(141		)	(203		)	(246		)	(628		)
Adjustments to previously provided reserves				(10		)	(32		)	—			(16		)	(58		)
Balance June 27, 2003	—			—			98			733			447			1,278
Involuntary Employee Termination Benefits:
Balance December 31, 2002	$	1,613		$	1,595		$	16,067		$	16,541		$	16,119		$	51,935
Accrual related to 2003 acquisitions	—			—			—			—			9,529			9,529
Costs incurred in 2003	(1,613		)	(1,392		)	(5,661		)	(2,166		)	(6,978		)	(17,810		)
Adjustments to previously provided reserves	—			—			—			—			(1,531		)	(1,531		)
Balance June 27, 2003	$	—		$	203		$	10,406		$	14,375		$	17,139		$	42,123
Facility Closure and Restructuring Costs:
Balance December 31, 2002	$	914		$	2,389		$	2,573		$	6,424		$	22,609		$	34,909
Accrual related to 2003 acquisitions	—			—			—			—			3,156			3,156
Costs incurred in 2003	(475		)	(648		)	(801		)	(3,977		)	(7,163		)	(13,064		)
Adjustments to previously provided reserves	(18		)	—			—			—			(1,696		)	(1,714		)
Balance June 27, 2003	$	421		$	1,741		$	1,772		$	2,447		$	16,906		$	23,287

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NOTE 5.GOODWILL

The following table shows the rollforward of goodwill reflected in the financial statements resulting from the Company’s acquisition activities for the first half of 2003 ($ in millions).

Balance December 31, 2002	$	2,777
Attributable to 2003 acquisitions	129
Other Changes, principally the effect of foreign currency translations	21
Balance June 27, 2003	$	2,927

There were no dispositions of businesses with related goodwill during the six months ended June 27, 2003.  The acquired goodwill change in the period related to the Company’s Process/Environmental Controls segment. The carrying value of goodwill, at June 27, 2003, for the Tools and Components segments and Process/Environmental Controls segment is approximately $212 million and $2,715 million, respectively.  Danaher has nine reporting units closely aligned with the Company’s strategic platforms and specialty niche businesses.  They are as follows:  Tools, Motion, Electronic Test, Power Quality, Environmental, Aerospace and Defense, Industrial Controls, Level/Flow, and Product Identification.

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NOTE 6.NEW ACCOUNTING STANDARDS

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).”  SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than at the date of the entity’s commitment to an exit plan.  This statement is effective for exit and disposal activities that are initiated after December 31, 2002.  This SFAS did not have a material impact on the Company’s financial statements.

In December 2002, the FASB issued Statement No. 148 (FAS 148), “Accounting for Stock-Based Compensation-Transition and Disclosure” which amends FASB No. 123 (FAS 123), “Accounting for Stock-Based Compensation.”  FAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of FAS 123 to require disclosures in both the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The transition guidance and disclosure provisions of FAS 148 is effective for the Company’s financial statements issued for 2003.  As allowed by FAS 123, the Company follows the disclosure requirements of FAS 123, but continues to account for its employee stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, which results in no charge to earnings when options are issued at fair market value.  Therefore, at this time, adoption of this statement will not have a material impact on the Company’s financial position or results of operations.

The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period:

	Three Months Ended						Six Months Ended
	June 27, 2003			June 28, 2002			June 27, 2003			June 28, 2002
Net earnings before effect of accounting change, as reported	$	125,144		$	103,665		$	228,270		$	186,400
Deduct:Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(4,815		)	(4,288		)	(9,515		)	(8,575		)
Pro forma net income	$	120,329		$	99,377		$	218,755		$	177,825
Earnings per share before effect of accounting change:
Basic – as reported	$	0.82		$	0.69		$	1.49		$	1.26
Basic – pro forma	$	0.79		$	0.66		$	1.43		$	1.20
Diluted – as reported	$	0.79		$	0.66		$	1.44		$	1.21
Diluted – pro forma	$	0.76		$	0.64		$	1.39		$	1.16

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In December 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  FIN 45 requires a guarantor to make additional disclosures in its interim and annual financial statements regarding the guarantor’s obligations.  In addition, FIN 45 requires, under certain circumstances, that a guarantor recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken when issuing the guarantee. The Company has adopted the disclosure requirements of this interpretation.

The Company has from time to time divested certain of its businesses and assets.  In connection with these divestitures, the Company often provides representations, warranties and/or indemnities to cover various risks and unknown liabilities, such as environmental liabilities and tax liabilities. The Company cannot estimate the potential liability from such representations, warranties and indemnities because they relate to unknown conditions.  However, the Company does not believe that the liabilities relating to these representations, warranties and indemnities will have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Due to the Company’s downsizing of certain operations pursuant to acquisitions, restructuring plans or otherwise, certain properties leased by the Company have been sublet to third parties. In the event any of these third parties vacates any of these premises, the Company would be legally obligated under master lease arrangements. The Company believes that the financial risk of default by such sublessors is individually and in the aggregate not material to the Company’s financial position, results of operations or liquidity.

The Company generally accrues estimated warranty costs at the time of sale.  In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly, and appropriately maintained.  Warranty period terms depend on the nature of the product and range from 90 days up to the life of the product.  The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property damage.  The liability, shown in the following table, is reviewed for reasonableness on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.

In certain cases the Company will sell extended warranty or maintenance agreements.  The proceeds from these agreements is deferred and recognized as revenue over the term of the agreement.

The following is a roll forward of the Company’s warranty accrual for the six months ended June 27, 2003 ($ in millions).

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Balance at beginning of period	$	61,235
Accruals for warranties issued during the period and changes in estimates related to  pre-existing warranties	27,286
Settlements made	(26,684		)
Additions due to acquisitions	1,955
Balance at end of period	$	63,792

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46).  This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, addresses consolidation of variable interest entities.  FIN 46 requires certain variable interest entities (“VIE’s”) to be consolidated by the primary beneficiary if the entity does not effectively disperse risks among the parties involved.  The provisions of FIN 46 are effective immediately for those variable interest entities created after January 31, 2003.  Theprovisions are effective for the first period beginning after June 15, 2003 for those variable interests held prior to February 1, 2003.  While the Company believes this Interpretation will not have a material effect on its financial position or results of operations,  it is continuing to evaluate the effect of adoption of this Interpretation.

In April 2003, the FASB released SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 clarifies the accounting for derivatives, amending the previously issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative, amends the definition of an underlying contract, and clarifies when a derivative contains a financing component in order to increase the comparability of accounting practices under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003.  The adoption of SFAS No. 149 is not expected to have a material impact on our consolidated financial statements.

In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company’s implementation of this SFAS did not have a material impact on its financial statements.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with its audited consolidated financial statements.

INFORMATION RELATING TO FORWARD LOOKING STATEMENTS

Certain information included or incorporated by reference in this document may be deemed to be “forward looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts, that address activities, events or developments that Danaher Corporation (“Danaher,” the “Company,” “we,” “us,” “our”) intends, expects, projects, believes or anticipates will or may occur in the future are forward looking statements. Such statements are characterized by terminology such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” and similar expressions. These statements are based on assumptions and assessments made by the Company’s management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. These forward looking statements are subject to a number of risks and uncertainties, including but not limited to:

•the Company’s ability to continue long-standing relationships with major customers and penetrate new channels of distribution;

•increased competition;

•demand for and market acceptance of new and existing products, including changes in regulations (particularly environmental regulations) which could affect demand for products in the Process/Environmental Controls segment;

•adverse changes in currency exchange rates or raw material commodity prices;

•unanticipated developments that could occur with respect to contingencies such as litigation, product liability exposures and environmental matters;

•changes in the environment for making acquisitions and dispositions, including changes in accounting or regulatory requirements or in the market value of acquisition candidates;

•the Company’s ability to identify appropriate acquisition candidates and integrate acquired businesses into its operations, realize planned synergies and operate such businesses profitably in accordance with expectations;

•risks customarily encountered in foreign operations, including transportation interruptions, changes in a country’s or region’s political or economic conditions,

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trade protection measures, different protection of intellectual property and changes in laws or licensing or regulatory requirements;

•the Company’s ability to achieve projected levels of efficiencies and cost reduction measures;

•risks related to terrorist activities and instability in the Middle East; and

•other risks and uncertainties that affect the manufacturing sector generally including, but not limited to, economic, political, governmental and technological factors affecting the Company’s operations, markets, products, services and prices.

Any such forward looking statements are not guarantees of future performances and actual results, developments and business decisions may differ from those envisaged by such forward looking statements.  The Company disclaims any duty to update any forward looking statement, all of which are expressly qualified by the foregoing.

OVERVIEW

Danaher Corporation designs, manufactures and markets industrial and consumer products with strong brand names, proprietary technology and major market positions in two business segments: Process/Environmental Controls and Tools and Components. The Process/Environmental Controls segment is a leading producer of environmental products, including water quality analytical instrumentation and leak detection systems for underground fuel storage tanks; retail petroleum automation products; compact professional electronic test tools; product identification equipment and consumables; and motion, position, speed, temperature, pressure, level, flow, particulate and power reliability and quality control and safety devices. In its Tools and Components segment, the Company is a leading producer and distributor of general purpose mechanics’ hand tools and automotive specialty tools, as well as of toolboxes and storage devices, diesel engine retarders, wheel service equipment, drill chucks, and hardware and components for the power generation and transmission industries.

Market indicators of the global manufacturing economy continue to be mixed.  While differences exist among the Company’s businesses, the Company’s markets have remained generally stable for the past four quarters and this trend is expected to continue for the balance of the 2003 fiscal year.

Second quarter 2003 consolidated revenues increased 13% over 2002. Acquisitions accounted for 11% of this growth, and favorable currency translation contributed 3.5%.  Consolidated sales from existing businesses (defined as businesses that have been part of the Company for each comparable period reported) declined 1.5% for the quarter. For the six month period, revenues grew 16%, with

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acquisition growth of 13% and favorable currency translation of 3.5%.  Sales from existing businesses declined approximately 0.5% for the six month period.

PROCESS/ENVIRONMENTAL CONTROLS

Revenues of the Process/Environmental Controls segment increased 20% for the second quarter of 2003 compared to 2002.  The fourth quarter 2002 acquisition of Thomson Industries, and the 2003 acquisition of Willett International Limited, together with several other smaller acquisitions provided a 15% increase in segment sales.  This increase was in addition to an approximate 5% favorable currency translation impact.  Sales from existing businesses for this segment improved slightly for the quarter compared to 2002.

Revenues from the Company’s environmental businesses, representing approximately 30% of segment revenue, increased 10% in the 2003 second quarter compared to 2002, resulting primarily from acquisitions completed in 2003 and 2002.  Acquisitions accounted for 7.5% of the environmental businesses’ growth, as sales from existing operations declined approximately 2% and favorable currency translation provided 4.5% growth.  Existing operations were impacted by weakness in the Gilbarco Veeder-Root business, resulting primarily from softness in major oil company demand for Gilbarco petroleum dispensers.  Sales from existing businesses in the Company’s water quality businesses were flat for the quarter as strength in both lab and process instrumentation sales in Europe was offset by lower demand in the U.S. ultrapure markets.

Electronic test revenues, representing slightly over 15% of segment revenues, grew 16% during the second quarter of 2003 compared to 2002.  Acquisitions, principally the Raytek acquisition,  provided 13% of this growth, which includes recent, strong sales of Raytek’s non-contact temperature measurement products.   Favorable currency translation provided 5% growth.  These factors were partially offset by a 2% decline in sales from existing businesses driven primarily by lower demand for network test equipment.

Sales in the Company’s motion businesses, representing approximately 20% of segment revenues, grew 46%, as acquisition growth of 34% (primarily from the Thomson Industries acquisition in the fourth quarter of 2002) combined with growth of 6% from existing operations to drive the increase.  The growth in existing businesses was driven by share gains in European markets, continued growth in North America from direct drive revenues and sales of electric vehicle motion systems, as conversion to AC applications in the electrical vehicle market continues.  Motion revenues for the quarter also increased 6% from favorable currency translation effects.

In February 2002, the Company established its product identification business with the acquisition of Videojet, and in January 2003 added to it with the acquisition of Willett, which

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together account for slightly over 10% of segment revenues.  For the second quarter of 2003, product identification revenues grew 54% compared to 2002, with the Willett acquisition providing 38% growth, favorable currency impacts of 5%, and growth from existing operations of 11%.

The segment’s niche businesses in the aggregate showed mid-single digit revenue growth in the second quarter, driven primarily by acquisitions and favorable currency translation impacts.

Segment sales for the six month period of 2003 of $1,942.6 million were 23% higher than the 2002 period.  Acquisitions accounted for a 17.5% increase in sales over the comparable period in 2002, in addition to favorable currency translation impacts of 4.5% and an increase of 1% in sales from existing businesses.

For the six month period, unit sales from existing operations of the environmental businesses declined approximately 2%, with flat performance in water quality markets offset by weakness in demand for ultrapure instrumentation and in Gilbarco’s dispenser markets. Sales from existing operations of the motion control businesses increased at high-single digit rates for the period, reflecting share gains in certain of its end markets, including electric vehicles and direct drives.  The electronic test businesses reported sales from existing operations declined at low-single digit rates for the six month period, primarily due to weakness in network test equipment sales.

For the second quarter, operating profit margins for the segment were 16.2% in 2003 compared to 15.4% in 2002.  This 0.8% increase resulted primarily from benefits achieved from the 2001 restructuring program and other cost reductions completed during 2002 and 2003.  This increase was partially offset by the dilutive impact of lower operating margins of newly acquired businesses, and increases in expenditures on growth opportunities in the segment.

For the six month period, operating profit margins for the segment increased to 15.6% in 2003 from 15.1% in 2002.  This improvement was driven primarily by cost reduction initiatives completed during 2002, and margin improvements in recently acquired businesses.

TOOLS AND COMPONENTS

Revenues in the Tools and Components segment declined approximately 6% in the second quarter of 2003 compared to 2002.  The entirety of this decrease represents a decline in sales from existing businesses, as there were no acquisitions in this segment during 2002 or 2003, and the impact of currency was negligible.  Hand Tool revenues, representing approximately 65% of segment sales, declined approximately 3%, driven primarily by decreases in sales from the group’s retail hand tool product lines which resulted primarily from inventory reductions by the group’s largest customers.  Adding to the revenue decline in the Hand Tool Group was a net sales decline in the segment’s niche businesses, as continued weakness in shipments of truck and industrial boxes as a result of softness in

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end-user demand was partially offset by revenue gains in the Company’s wheel service equipment product lines.  Also, sales of diesel engine retarders fell during the quarter, reflecting decreased end-user demand as compared to 2002. In 2002, the business experienced an inventory build-up by customers in advance of regulatory changes last year.

Segment revenues for the six month period of 2003 fell 3.4% compared to 2002 for the reasons noted above.

Second quarter 2003 operating profit margins for the segment were 15.3%, slightly above the 15.0% margins reported in the second quarter of 2002.  Margin improvements at the Jacobs Chuck business unit related to the 2001 restructuring program, and other cost reductions, were offset by margin declines at the Delta Industries business unit related to the volume decrease noted above, and by spending on growth opportunities, including the Hand Tool Group’s retail and industrial markets initiatives.  Operating profit margins for the six month period of 14.2% improved slightly from the 14.0% reported in 2002.  The Company expects to continue pursuing cost reduction efforts in its tools businesses, including plant closures and integrations of existing operations as appropriate.

GROSS PROFIT

Gross profit margins for the 2003 second quarter were 40.4%, an increase of 1.6 points compared to 38.8% in 2002.  This increase results from the benefits of the 2001 restructuring program and other improvements in the cost structures of existing business units, and from cost reductions in business units acquired during the first quarter of 2002, offset somewhat by the effect of slightly lower gross margins of newly acquired businesses.

Gross profit margins for the 2003 six month period were 39.8%, an increase of 1.6 points compared to 38.2% in 2002.  This increase resulted from the same cost reductions and margin improvements impacting the second quarter, as discussed above.  Gross profit margins for 2003 have benefited from the Company’s restructuring program announced in the fourth quarter of 2001, which is expected to provide approximately $38 million of savings to the full year 2003.

OPERATING EXPENSES

In the second quarter of 2003, selling, general and administrative expenses were 24.9% of sales, an increase of 0.7 points from the 2002 level of 24.2%.  This increase is due primarily to additional spending to fund growth opportunities throughout the Company, as well as the impact of newly acquired businesses and their higher relative operating expense structures.  For the six month period of 2003, selling, general and administrative expenses were 25.0% of sales, an increase of 1.0 point from the 2002 level of 24.0%.  This increase results from the same factors as those described for

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the second quarter.

INTEREST COSTS AND FINANCING TRANSACTIONS

The Company’s debt financing as of June 27, 2003 was composed primarily of $548.2 million of zero coupon convertible notes due 2021 (“LYONs”), $342.9 million of 6.25% Eurobond notes due 2005 and $250 million of 6% notes due 2008.  The Company maintains uncommitted lines and a revolving $500 million senior unsecured credit facility available for general corporate purposes.  There have been no borrowings under the revolving credit facility since it was established in June 2001.  Borrowings under the revolving credit agreement bear interest of Eurocurrency rate plus .21% to ..70%, depending on the Company’s current debt rating.  The credit facility has a fixed five-year term.  There were no borrowings outstanding under the Company’s uncommitted lines of credit as of June 27, 2003.   The Company is currently negotiating with lenders for an additional $500 million senior unsecured credit facility with terms consistent with the existing facility and expects to enter into the new facility during the third quarter of 2003.  Net interest expense of $13.0 million in the second quarter of 2003 was $1.7 million higher than the corresponding 2002 period.  The increase in interest expense is due primarily to the unfavorable impact of the Euro/US Dollar exchange rate on interest expense related to the Company’s $342.9 million of 6.25% Eurobond notes due 2005.  Net interest expense of $24.9 million for the six month period rose $2.7 million compared to 2002, also primarily driven by the unfavorable impacts of the Euro/U.S. Dollar exchange rate on interest expense.  Interest income of $2.3 million and $2.5 million was recognized in the second quarters of 2003 and 2002, respectively, and interest income of $4.5 million was recognized in each of the 2003 and 2002 six month periods.

INCOME TAXES

The 2003 effective tax rate of 33.5% is 1.0% lower than the 2002 effective rate, mainly due to the effect of a higher proportion of foreign earnings in 2003 compared to 2002.

The Company is currently reviewing its expected effective tax rate for the full year 2003.  The Company expects the effective tax rate to continue to decrease, reflecting increased earnings from foreign operations and the effect of reorganizing and restructuring operations in certain foreign jurisdictions.  The magnitude of this decrease in the effective tax rate is not yet known.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, and credit risk, which could impact its results of operations and financial condition. The Company manages its exposure to these risks through its normal operating and financing activities.

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The fair value of the Company’s fixed-rate long-term debt is sensitive to changes in interest rates. The value of this debt is subject to change as a result of movements in interest rates. Sensitivity analysis is one technique used to evaluate this potential impact. Based on a hypothetical, immediate 100 basis-point increase in interest rates at June 27, 2003, the market value of the Company’s fixed-rate long-term debt would decrease by $15 million. This methodology has certain limitations, and these hypothetical gains or losses would not be reflected in the Company’s results of operations or financial conditions under current accounting principles. In January 2002, the Company entered into two interest rate swap agreements for the term of the 6% notes due 2008 having a notional principal amount of $100 million whereby the effective interest rate on $100 million of these notes will be the six month LIBOR rate plus approximately 0.425%.  In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, the Company accounts for these swap agreements as fair value hedges.  Since these instruments qualify as “effective” or “perfect” hedges, they will have no impact on net income or stockholders’ equity.

The Company has a number of manufacturing sites throughout the world and sells its products in more than 30 countries.  As a result, it is exposed to movements in the exchange rates of various currencies against the United States dollar and against the currencies of countries in which it manufactures and sells products and services.  In particular, the Company has more sales in European currencies than it has expenses in those currencies.  Therefore, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively.  The Company’s issuance of Eurobond notes in 2000 provides a natural hedge to a portion of the Company’s European net asset position. The Company has generally accepted the exposure to exchange rate movements relative to its investment in foreign operations without using derivative financial instruments to manage this risk.

Other than the above noted swap arrangements, there were no material derivative instrument transactions during any of the periods presented.  Additionally, the Company does not have significant commodity contracts or derivatives.

Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and temporary investments, our interest rate swap agreements and trade accounts receivable.

The Company is exposed to credit losses in the event of nonperformance by counter parties to its financial instruments.  The Company anticipates, however, that counter parties will be able to fully satisfy their obligations under these instruments. The Company places cash and temporary investments and its interest rate swap agreements with various high-quality financial institutions throughout the world, and exposure is limited at any one institution.  In addition, though the Company does not obtain

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collateral or other security to support these financial instruments, it does periodically evaluate the credit standing of the counter party financial institutions.

Concentrations of credit risk arising from trade accounts receivable are due to selling to a large number of customers in a particular industry. The Company performs ongoing credit evaluations of its customers’ financial conditions and obtains collateral or other security when appropriate.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity needs arise primarily from capital investment in machinery, equipment and the improvement of facilities, funding working capital requirements to support business growth initiatives, acquisitions, dividend payments and debt service costs.  The Company continues to generate substantial cash from operations and remains in a strong financial position, with resources available for reinvestment in existing businesses, strategic acquisitions and managing its capital structure on a short- and long-term basis.  Operating cash flow, a key source of the Company’s liquidity, was $449.2 million for the six months ended June 27, 2003, an increase of $55.8 million, or 14.2% as compared to the six months ended June 28, 2002.  The increase in operating cash flow was driven primarily by earnings growth and the impact of the timing of payments for certain of the Company’s benefit programs, including 401(k) and employee health plan contributions.  A slowing in working capital improvements relating to accounts receivable and inventory compared to levels in 2002 partially offset these increases.

Investing activities for the six months ended June 27, 2003 used cash of $142.4 million compared to $843.8 million of cash used in the first six months of 2002.  Gross capital spending of $37.6 million for the first six months of 2003 increased $9.4 million from the first six months of 2002, due to capital spending relating to new acquisitions and spending related to the Company’s low-cost region sourcing initiatives.  Capital expenditures are made primarily for machinery, equipment and the improvement of facilities. In 2003, the Company expects capital spending of approximately $100 million. Disposals of fixed assets yielded $6.8 million of cash proceeds for the first six months of 2003, primarily due to the sale of one facility and other real property. Net pre-tax gains of $0.8 million were recorded on the sales and are included as a gain on sale of real estate in the accompanying statements of earnings.  In addition, as discussed below, the Company has completed several acquisitions of existing businesses during the six months ended June 27, 2003 as well as the year ended December 31, 2002.  All of the acquisitions during this time period have resulted in the recognition of goodwill in the Company’s financial statements. This goodwill typically arises because the purchase prices for these targets reflect the competitive nature of the process by which we acquired the targets and the complementary strategic fit and resulting synergies these targets bring to

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existing operations.  For a discussion of other factors see Note 4 to the accompanying financial statements.

The Company acquired five companies and product lines during the six-month period ended June 27, 2003 for total consideration of approximately $123 million in cash, including transaction costs.  The Company also assumed debt with an estimated fair market value of approximately $45 million in connection with these acquisitions. In general, each company is a manufacturer and assembler of environmental or instrumentation products, in market segments such as product identification, environmental and aerospace and defense. These companies were all acquired to complement existing units of the Process/Controls segment. In addition, the Company sold one facility acquired in connection with a prior acquisition for approximately $11.6 million in net proceeds.  No gain or loss was recognized on the sale and the proceeds have been included in proceeds from divestitures in the accompanying Consolidated Condensed Statements of Cash Flows.

In July 2003, the Company acquired two businesses for total cash consideration of approximately $50 million, including transaction costs.

On February 25, 2002, the Company completed the divestiture of API Heat Transfer, Inc. to an affiliate of Madison Capital Partners for approximately $63 million (including $53 million in net cash and a note receivable in the principal amount of $10 million), less certain liabilities of API Heat Transfer, Inc. paid by the Company at closing and subsequent to closing.  On February 5, 2002, the Company acquired 100% of Marconi Data Systems, formerly known as Videojet Technologies, from Marconi plc in a stock acquisition, for approximately $400 million in cash including transaction costs.  On February 4, 2002, the Company acquired 100% of Viridor Instrumentation Limited from the Pennon Group plc in a stock acquisition, for approximately $137 million in cash including transaction costs.  On February 1, 2002, the Company acquired 100% of Marconi Commerce Systems, formerly known as Gilbarco, from Marconi plc in a stock acquisition, for approximately $309 million in cash including transaction costs (net of $17 million of acquired cash).  On October 18, 2002, the Company acquired 100% of Thomson Industries, Inc. in a stock and asset acquisition, for approximately $147 million in cash including transaction costs (net of $2 million of acquired cash), an agreement to pay $15 million over the next 6 years, and an additional maximum contingent consideration of up to $60 million cash based on the future performance of Thomson through December 31, 2005.  In addition, during the year ended December 31, 2002, the Company acquired 8 smaller companies, for total consideration of approximately $166 million in cash including transaction costs.

Financing activities used cash of $66 million during the first six months of 2003 compared to $437 million generated during the first six months of of 2002.  The primary reason for the difference was

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the Company’s issuance of 6.9 million shares of the Company’s common stock in March 2002.  Proceeds of the common stock issuance, net of the related expenses, were approximately $467 million. The Company used the proceeds to repay approximately $230 million of short-term borrowings incurred in the first quarter of 2002 related to the Videojet, Gilbarco and Viridor acquisitions.

During the first quarter of 2001, the Company issued $830 million (value at maturity) in zero-coupon convertible senior notes due 2021 known as Liquid Yield Option Notes or LYONS. The net proceeds to the Company were approximately $505 million, of which approximately $100 million was used to pay down debt, and the balance was used for general corporate purposes, including acquisitions.  The LYONs carry a yield to maturity of 2.375%.  Holders of the LYONs may convert each of their LYONs into 7.2676 shares of Danaher common stock (in the aggregate for all LYONs, approximately 6.0 million shares of Danaher common stock) at any time on or before the maturity date of January 22, 2021.  The Company may redeem all or a portion of the LYONs for cash at any time on or after January 22, 2004. Holders may require the Company to purchase all or a portion of the notes for cash and/or Company common stock, at the Company’s option, on January 22, 2004 or on January 22, 2011.  The Company will pay contingent interest to the holders of LYONs during any six-month period commencing after January 22, 2004 if the average market price of a LYON for a measurement period preceding such six-month period equals 120% or more of the sum of the issue price and accrued original issue discount for such LYON. Except for the contingent interest described above, the Company will not pay interest on the LYONs prior to maturity.

Total debt under the Company’s borrowing facilities increased to $1,326.1 million at June 27, 2003, compared to $1,310.0 million at December 31, 2002.  This increase was due primarily to the change in the U.S Dollar/Euro exchange rates and the resulting increase in the carrying value of the Company’s Euro denominated debt.  In addition, debt increased due to the effect of assumed debt obligations related to first quarter 2003 acquisitions, offset by repayments of debt, including the scheduled repayment of $30 million in private placement notes in April 2003. As of June 27, 2003, $342.9 million of the Company’s debt was fixed at a rate of 6.25%, $250 million was fixed at an average interest cost of 6% (subject to the interest rate swaps described above) and the Company’s LYONs obligations (which as of June 27, 2003 amounted to $548.2 million) carry a yield to maturity of 2.375% (with contingent interest payable as described above).  Substantially all remaining borrowings have interest costs that float with referenced base rates.  As of June 27, 2003, the Company had unutilized commitments under its revolving credit facility of $500 million.  Subsequent to quarter-end, on June 30, 2003, the Company repaid $66.6 million of its outstanding bank borrowings prior to maturity.  As of June 27, 2003, the Company held $1,068.1 million of cash and cash equivalents that were invested in highly liquid investment grade debt instruments with a maturity of 90 days or less.  As of June 27, 2003, the Company was in compliance with all debt covenants under the aforementioned debt instruments, including

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limitations on secured debt and debt levels. None of the Company’s debt instruments contain trigger clauses requiring the Company to repurchase or pay off its debt if rating agencies downgrade the Company’s debt rating.  In addition, as of the date of this Form 10-Q, the Company could issue up to $1 billion of securities under its shelf registration statement with the Securities and Exchange Commission.

The Company’s Matco subsidiary has sold, with recourse, or provided credit enhancements for, certain of its accounts receivable and notes receivable.  Amounts outstanding under this program approximated $90 million and $93 million at June 27, 2003 and December 31, 2002, respectively.  The subsidiary accounts for such sales in accordance with Statement of Financial Accounting Standards (SFAS) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities — a replacement of FASB Statement No. 125.”  A provision for estimated losses as a result of the recourse has been included in accrued expenses.  No gain or loss arose from these transactions.

Except to the extent disclosed elsewhere in this document, as of June 27, 2003, there have been no material changes outside the ordinary course of business with respect to the contractual obligations, commercial commitments, and off-balance sheet obligations described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

The ongoing costs of compliance with existing environmental laws and regulations have not had, and are not expected to have, a material adverse effect on the Company’s cash flows or financial position.

The Company will continue to have cash requirements to support working capital needs and capital expenditures, acquisitions, to pay interest and service debt and to pay dividends to shareholders. In order to meet these cash requirements, the Company intends to use available cash and internally generated funds and to borrow under its credit facility or under uncommitted lines of credit. The Company believes that cash provided from these sources will be adequate to meet its cash requirements for the foreseeable future.

The Company declared a regular quarterly dividend of $.025 per share payable on July 31, 2003, to holders of record on June 27, 2003.

ACCOUNTING POLICIES

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Condensed Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and

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liabilities. On an ongoing basis, the Company evaluates these estimates, including those related to bad debts, inventories, intangible assets, pensions and other post-retirement benefits, income taxes, and contingencies and litigation. The Company bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect management’s more significant judgments and estimates used in the preparation of the Consolidated Condensed Financial Statements. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2002.

Accounts receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory. The Company records inventory at the lower of cost or market. The estimated market value is based on assumptions for future demand and related pricing. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.

Acquired intangibles. The Company’s business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that the Company will incur.  The Company has adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, the new accounting standard for goodwill, which requires that the Company, on an annual basis, calculate the fair value of the reporting units that contain the goodwill and compare that to the carrying value of the reporting unit to determine if impairment exists.  Impairment testing must take place more often if circumstances or events indicate a change in the impairment status. Management judgment is required in calculating the fair value of the reporting units.

Long-lived assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the assets.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair

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value.  Judgments made by the Company relate to the expected useful lives of long-lived assets and its ability to realize undiscounted cash flows in excess of the carrying amounts of such assets and are affected by factors such as the ongoing maintenance and improvements of the assets, changes in the expected use of the assets, changes in economic conditions, changes in operating performance and anticipated future cash flows.  Since judgment is involved in determining the fair value of long-lived assets, there is risk that the carrying value of the Company’s long-lived assets may require adjustment in future periods.

Purchase accounting. In connection with its acquisitions, the Company assesses and formulates a plan related to the future integration of the acquired entity.  This process begins during the due diligence process and is concluded within twelve months of the acquisition.  The Company accrues estimates for certain costs, related primarily to personnel reductions and facility closures or restructurings, anticipated at the date of acquisition, in accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.”  Adjustments to these estimates are made up to 12 months from the acquisition date as plans are finalized.  To the extent these accruals are not utilized for the intended purpose, the excess is recorded as a reduction of the purchase price, typically by reducing recorded goodwill balances.  Costs incurred in excess of the recorded accruals are expensed as incurred.

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NEW ACCOUNTING STANDARDS – SEE NOTE 6 OF ITEM 1

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 4.CONTROLS AND PROCEDURES

(a)As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e).  Based upon the required evaluation, the Company’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures are effective.

(b)There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II  –  OTHER INFORMATION

ITEM 4.Submission of Matters to a Vote of Security Holders

The Company’s annual meeting of shareholders was held on May 6, 2003.  At the annual meeting, the shareholders voted on the following proposals:

1.To elect three directors of the Company to a term expiring in 2006.  Each nominee for director was elected by a vote of the shareholders as follows:

	Affirmative Votes	Votes Withheld
Mortimer M. Caplin	137,866,959	1,310,278
Donald J. Ehrlich	137,569,408	1,607,829
Walter G. Lohr, Jr.	137,912,247	1,264,990

In addition, the terms of Messrs. Steven M. Rales, Alan G. Spoon, H. Lawrence Culp, Jr., Mitchell P. Rales and A. Emmet Stephenson, Jr. as directors continued after the meeting.

2.To ratify the selection of Ernst & Young LLP as the Company’s independent accountant for the year ending December 31, 2003.  The proposal was approved by a vote of shareholders as follows:

For	137,293,701
Against	1,813,599
Abstain	69,979
	139,177,279

3.To approve the amended and restated Danaher Corporation & Subsidiaries Executive Deferred Incentive Program.  The proposal was approved by a vote of shareholders as follows:

For	137,478,048
Against	1,438,134
Abstain	260,654
Broker Non-Vote	443
	139,177,279

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4.To approve the material terms of the performance goals for incentive compensation to the Company’s executive officers.  The proposal was approved by a vote of shareholders as follows:

For	135,774,036
Against	3,186,921
Abstain	215,878
Broker Non-Vote	444
	139,177,279

5.To approve an award of performance shares to the Company’s President and Chief Executive Officer.  The proposal was approved by a vote of shareholders as follows:

For	129,173,989
Against	9,612,183
Abstain	390,664
Broker Non-Vote	443
	139,177,279

6.To act upon a shareholder proposal regarding Board of Director composition.  The proposal was rejected by a vote of shareholders as follows:

For	30,277,735
Against	75,281,539
Abstain	9,020,739
Broker Non-Vote	24,597,266
	139,177,279

ITEM 6.Exhibits and Reports on Form 8-K

(a)Exhibits:

Exhibit 10.1*	Danaher Corporation & Subsidiaries Executive Deferred Incentive Program (incorporated by reference from Annex A to Danaher Corporation’s 2003 Proxy Statement on Schedule 14A filed with the Commission on April 1, 2003).
Exhibit 10.2*	Danaher 2003 Incentive Plan (incorporated by reference from Annex B to Danaher Corporation’s 2003 Proxy Statement on Schedule 14A filed with the Commission on April 1, 2003).
Exhibit 10.3*	Danaher Corporation Share Award Agreement dated as of March 26, 2003 by and between Danaher Corporation and H. Lawrence Culp, Jr. (incorporated by reference from Annex C to Danaher

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	Corporation’s 2003 Proxy Statement on Schedule 14A filed with the Commission on April 1, 2003).
Exhibit 10.4	Supply Agreement dated as of March 31, 2003 by and among Sears, Roebuck and Co., Easco Hand Tools, Inc., et al. (portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission).
Exhibit 10.5*	Letter agreement as of July 15, 2003 by and between Danaher and Donald E. Doles.
Exhibit 99.1	Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2	Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.3	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.4	Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.5	On July 17, 2003, the Company issued a press release announcing earnings for the quarter ended June 27, 2003.  A copy of the release is furnished herewith as Exhibit 99.5.  The press release attached hereto as Exhibit 99.5 is being furnished by the Company pursuant to Item 12 of Form 8-K.

*Indicates management contract or compensatory plan, contract or arrangement.

(b)Reports filed on Form 8-K:

The Company furnished the following Current Report on Form 8-K during the three months ended June 27, 2003:

The Company furnished a Current Report on Form 8-K dated April 17, 2003, announcing earnings for the three months ended March 28, 2003 and attaching a press release related thereto.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DANAHER CORPORATION:

Date:	July 16, 2003	By:	/s/ Patrick W. Allender
			Patrick W. Allender
			Executive Vice President - Chief Financial Officer and Secretary
Date:	July 16, 2003	By:	/s/ Robert S. Lutz
			Robert S. Lutz
			Vice President and Chief Accounting Officer

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EX-10.4

Exhibit 10.4

SUPPLY AGREEMENT

This Supply Agreement (the “Agreement”) is made as of March 31, 2003 (the “Effective Date”) by and between SEARS, ROEBUCK AND CO., a New York corporation (“Sears”) with offices at 3333 Beverly Road, Hoffman Estates, Illinois 60179, and Easco Hand Tools, Inc., a Delaware corporation with offices at 125 Powder Forest Drive, Simsbury, Connecticut 06070 (“Easco”) , Lea Way Handtool Co., Ltd., a corporation formed under the laws of the Republic of China with offices at 288 Hou Tswang Road, Pei Twen District, Taichung, Taiwan (“Lea Way”), and Jessie & J Co., Ltd., a Hong Kong corporation with offices at Rm 1010, Tower A, Hung Hum Commercial Center, 39 Ma Tau Wai Road, Hung Hom, Kowloon, Hong Kong (“Jessie & J”), collectively doing business as Danaher Tool Group. Easco, Lea Way and Jessie & J are collectively referred to herein as “Seller.”

In consideration of the mutual covenants and promises this Agreement contains and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.VENDOR AGREEMENT.

This Agreement is a “Vendor Agreement” pursuant to the Universal Terms and Conditions between Seller and Sears of even date herewith (the “UTC”).  The UTC, including the Vendor Information Guide (as supplemented and modified by Sears, the “Vendor Guide,” provided that no supplement or modification to the Vendor Guide that results in additional obligations of or costs to Seller shall be effective against Seller if Seller objects to it in writing to Sears within 60 days after Sears e-mails notice of such supplement or modification to registered users of the Sears Business Exchange) incorporated into the UTC by reference, is incorporated into this Agreement.  References herein to the Vendor Guide will mean the domestic Vendor Information Guide with respect to Domestic Products and the International Vender Information Guide with respect to Import Products.  This Agreement will control over the UTC in case the terms of this Agreement are contradictory to or inconsistent with the terms of the UTC.  All capitalized terms used but not defined herein will have the meaning ascribed to them in the UTC.

2.DEFINITIONS, SUPPLY AND PURCHASE OBLIGATIONS; PURCHASE ORDERS; FORECASTS; ACCEPTANCE.

2.1.Definitions.

(a)“Mechanics Hand Tools” shall mean sockets (excluding impact sockets), ratchets, wrenches, adapters, extension bars, nutdrivers, hex keys, torque wrenches,

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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ratcheting wrenches, speeders, hinge handles, sliding Ts, and universal joints and other Products that Sears and Seller agree in writing to add to Exhibit A.

(b)“Product” shall mean any Sears Branded MHT or other Mechanics Hand Tool that is listed on Exhibit A, as that Exhibit is amended in writing by Sears and Seller from time to time.  Except for purposes of Sections 2.1(f), 2.2, 2.7, 8, 9.1, 9.2, 9.3, 9.4, 9.5, 9.6 and  9.8, “Products” also includes impact sockets.

(c)“Domestic Product” shall mean a Product that Sears purchases F.O.B. a location inside the United States, as designated in Exhibit A, as that Exhibit is amended in writing by Sears and Seller from time to time.

(d)“Import Product” shall mean a Product that Sears purchases F.O.B. a location outside the United States, as designated in Exhibit A, as that Exhibit is amended in writing by Sears and Seller from time to time.

(e)“Sears Branded MHTs” shall mean all Mechanics Hand Tools manufactured on behalf of Sears or its Majority-Owned Domestic Subsidiaries and bearing a Sears-owned brand, including Craftsman, Craftsman Professional and Companion, whether such Mechanics Hand Tools are manufactured by Seller or any other manufacturer.

(f)“Sears Branded Products” shall mean all Sears Branded MHTs and all Sears Branded impact sockets.

(g)“New Product” means any Product that offers significant improvement in performance or functionality over existing Products and that, at the time it is first added to Sears’ assortment, does not replace an existing Product (and is not composed of a reassortment of existing Products) in Sears’ assortment the sales history of which would have provided substantial insight into the sales potential of the new Product.  For example, at the time Sears first began selling them, the high visibility sockets and the next generation ratchets were New Products.

(h)“Eligible MHTs” shall mean all Mechanics Hand Tools except *, or *, or *, and *.

(i)“Seller-Made Eligible MHT Percentage” shall mean, for any period, a percentage calculated by dividing (i) the aggregate dollar amount of purchases of Eligible MHTs by Sears and its Majority-Owned Domestic Subsidiaries from Seller and its majority-owned subsidiaries during that period (excluding any such purchases that are made at less than the Initial First Cost Price or, if the Initial First Cost Price has been increased pursuant to Section 3, then excluding any such purchases at less than the adjusted price for so long as the adjusted price is in effect) by (ii) the aggregate dollar amount of purchases of Eligible MHTs by Sears and any of its Majority-Owned Domestic Subsidiaries from all vendors during that period.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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(j)“Purchase Order” means a purchase order issued by Sears to Seller.

(k)“Total Purchases” means the aggregate First Cost Price of all Products that Seller and its majority-owned subsidiaries ship to Sears and its Majority-Owned Domestic Subsidiaries during a particular period, excluding purchases by Sears and its Majority-Owned Domestic Subsidiaries pursuant to the Industrial Contract.

(l)“Majority-Owned Domestic Subsidiaries” means any subsidiary incorporated and doing business in the United States or Puerto Rico, the majority of the outstanding voting securities of which are owned by Sears.

(m)“Initial First Cost Price” for a Product means the price listed on Exhibit A for that Product as of the Effective Date.

(n)           “First Cost Price” for a Product means the Initial First Cost Price for that Product, subject to any adjustment pursuant to Section 2.7 or Section 3.

(o)           “Industrial Contract” means the contract between Sears and Easco dated as of December 10, 2002, as such agreement may be amended from time to time pursuant to the terms thereof, relating to the distribution by Seller of Sears Branded MHTs and other products to commercial customers.

(p)           “VIR/Subsidy Measurement Period” means, as the context requires, (i) the second, third and fourth fiscal quarters of 2003, (ii) fiscal 2004, (iii) fiscal 2005 or (iv) the first fiscal quarter of 2006, each as measured by Sears’ fiscal year.

2.2.Requirements; Additional Business.

Subject to the provisions of Section 2.4 below and provided that Seller is able to meet Sears’ requirements as set forth in this Agreement, * Sears shall purchase from Seller quantities of Eligible MHTs sufficient to maintain the Seller-Made Eligible MHT Percentage at no less than * percent (*%).

2.3.Obligation to Supply.

Subject to the terms of this Agreement, Seller hereby agrees that it shall supply to Sears each of the Products listed on Exhibit A hereto and all other Products that become subject to the terms of this Agreement, upon issuance of a Purchase Order (as defined below).  Each of the Products shall bear the stock keeping unit (“SKU”) number assigned to it by Sears, as listed on Exhibit A.  If, after the Effective Date, additional Products are to be sold to Sears pursuant to this Agreement, then the parties shall execute a supplement to Exhibit A setting forth a description of such Products, the SKU, and other information required by Exhibit A for such Products.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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2.4.Ordering Processes.

The provisions of this Section 2.4 shall be effective as of April 28, 2003 and shall continue throughout the balance of the Term.

(a)Definitions:

•“Regular Product” means any Product that is not a New Product.

•“New Promotional Product” means any New Product that Sears first offers for sale by including it in a weekly Sears pre-print, in an infomercial or in any other print or broadcast media.

•“Average Promotional Quantity” of any Product means the number calculated as follows:

A ÷ B, where

A = the number of units of the Product and its Product Equivalent that Sears sold during promotions (as defined by the Media Code based on the ad date) in the twelve full calendar months preceding the date on which Sears first gives Seller a sales forecast for a new promotion of the Product minus the number of units of the Product and its Product Equivalent that Sears sold during promotions in October, November and December of that twelve month period; and

B = nine.

•“Special Promotion” means any promotion of a Product for which Sears’ sales forecast is *% or greater than the Average Promotional Quantity for that Product.

•“Special Promotional Product” means any Regular Product or New Product that Sears features in a Special Promotion.

•“Product Equivalent” means a Product (i) that is from the same product grouping as another Product and (ii) the sales history of which would be reasonably comparable to the sales history of the other Product.

•“Lock Date” means, for a New Promotional Product, the day that is * before each Ship Date for that Product, and for a Regular Product or a Special Promotional Product, the day that is * before each Ship Date for that Product.

•“Netted Needs” means the quantity of any Domestic Product that Sears estimates it may purchase from Seller on a particular Ship Date.

•“Firm Deployment Date” means (i) for a Rapid Deployment (“RD”) shipment location, the date on which Seller receives “Firm Shipping Instructions” (Firm EDI 862) from Sears and (ii) for a Distribution Resource Planning (“DRP”) shipment location, the date on which Seller receives a Purchase Order (EDI 850) from Sears.

•“Shipping Window” means, for “less than truckload” shipments, the period of time beginning * before the Ship Date and ending on the * after the Ship Date, and for all other shipments means the period of time beginning * before the Ship Date and ending on the * after the Ship Date.

(b)Each week Sears will electronically deliver to Seller Sears’ Netted Needs for the Domestic Products for each week over the following * (for DRP locations) or * (for RD locations) (the “Needs Forecast”). Sears will update the Needs

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

4

Forecasts weekly and will periodically set regular Ship Dates for Domestic Products.  On the applicable Lock Date, Seller will obtain from the most recent Needs Forecast the Netted Needs for the week in which the Ship Date corresponding to that Lock Date occurs (the “Firm Order Quantity”).  (For example, if the Ship Date for a Regular Product is August 21, 2005, Seller will obtain the Netted Needs for the week of August 20, 2005 from the Needs Forecast received by Seller closest to, but no later than, *). For each Special Promotion and each Special Promotional Product included therein, Sears and Seller will set a sales target.  On a date that the parties jointly select for that Special Promotion and Special Promotion Product (the “Firm Sales Target Date”), the sales target will become firm: the Netted Needs for that Special Promotion and Special Promotion Product will be calculated based on the sales target, which Sears shall not alter without Seller’s written consent. Sears agrees to buy from Seller, and Seller agrees to sell to Sears, the applicable Firm Order Quantity of each Product, provided, however, that if the Netted Needs on the Firm Deployment Date (the “Deployment Date Quantity”) is higher or lower than the Firm Order Quantity, Seller will satisfy its obligations under this Section 2.4(b) by shipping to Sears any quantity between and including the Firm Order Quantity and the Deployment Date Quantity, and Sears shall purchase whatever quantity within that range that Seller ships during the applicable Shipping Window (the “Acceptable Quantity”).  Notwithstanding the foregoing, (i) once all Purchase Orders for a Special Promotional Product relating to a particular Special Promotion have been shipped, that Product will be considered a Regular Product for purposes of this Section 2.4, and (ii) once all Purchase Orders for the first promotion of a New Promotional Product have been shipped, that Product will be considered a Regular Product for purposes of this Section 2.4.

(c)Each month Sears will issue a rolling * forecast indicating the Import Products and quantities Sears estimates it may purchase from Seller (the “Import Forecast”) and the estimated Ship Dates for such Products. Sears may increase or decrease the quantities Sears estimates it may purchase by issuing new Import Forecasts. * prior to any Ship Date set forth in an Import Forecast (the “Import Lock Date”), the then-current Import Forecast will be deemed a Firm Order for the quantity of Products forecasted for that Ship Date (the “Preliminary Import Quantity”), provided that until * prior to the Ship Date Sears can increase or decrease the Preliminary Import Quantity up to *%.

(d)Notwithstanding the foregoing, if the Netted Needs (in the case of a Domestic Product) or the Import Forecast (in the case of an Import Product) for any Product (other than a Promotional Product) and any Ship Date is more than *% of Sears’ average weekly purchases of that Product in the * preceding the date of such Netted Needs or Import Forecast, Seller may reject the amount in excess of *% by delivering written notice to Sears within ten days after Seller first receives such Netted Needs or Import Forecast.

(e)Seller will attend monthly Production, Sales and Inventory (“PSI”) meetings at Sears’ offices, during which Sears and Seller will discuss forecasted sales and

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

5

promotional activity.  If in a PSI meeting that occurs after the Firm Sales Target Date, Sears and Seller agree to increase or decrease the sales targets for any Promotional Product(s), then Sears will promptly update the Needs Forecast based on the new sales targets.

(f)Orders calculated pursuant to Sections 2.4(b) and (c) shall be considered “Purchase Orders” and shall be deemed to have been issued by Sears and accepted by Seller on the applicable Lock Date (for Domestic Products) or the Import Lock Date (for Import Products), in each case subject to any adjustments to quantity that are permitted under Sections 2.4(b) and (c).

2.5.Forecasts.

Subject to the requirements purchase obligations set forth in Section 2.2, Sears shall have no obligation to purchase any specific quantity of Products from Seller unless and until Sears issues a Purchase Order pursuant to this Agreement.  Domestic Forecasts, Forecasted Quantities, Import Forecasts and any other forecasts or estimates Sears may communicate to Seller will be estimates only and will not be binding upon Sears or give rise to an obligation by Sears to purchase any Products. Seller acknowledges and agrees that Sears has no obligation and has made no commitment to purchase any minimum quantity of Products, except as expressly ordered in any Purchase Order (subject to any modification and cancellation rights that Sears may have under this Agreement and to Sears’ obligation to purchase its requirements as set forth in Section 2.2).

2.6.Conflicting Terms.

In the event of any conflict or inconsistency between this Agreement and the terms and condition of any Forecast, Purchase Order, or other order document, the terms and conditions of this Agreement will control unless this Agreement is expressly referenced and superseded in such order document and the order document is signed by an Authorized Sears Representative and an Authorized Seller Representative.  An “Authorized Sears Representative,” for purposes of this Agreement, is any individual whose responsibilities include general management of the Tools business; provided, however, that an individual with primary buying responsibility for the Products will be deemed an Authorized Sears Representative for purposes of agreeing to changes to any items on one or more of the Exhibits so long as no such change alters the definition of any term defined in this Agreement.  An “Authorized Seller Representative” for purposes of this Agreement is the President, Vice President – Finance or Vice President – Marketing or Director of Marketing for Seller’s Special Markets Division.

2.7.Seller’s Right to Bid.

If Sears receives or chooses to solicit offers from third parties to supply any Sears Branded MHT listed on Exhibit A, or any New Product that will be a Sears Branded MHT, Sears will deliver to Seller a written notice describing the Sears Branded MHT and a forecast of Sears’ expected purchases of such Sears Branded MHT for the following twelve (12) months.  Promptly

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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after determining the country or countries of manufacture the other bidder(s) are proposing for such Sears Branded MHT, Sears will deliver to Seller a written notice identifying such country or countries.  Seller may submit a supply proposal for such Sears Branded MHT and, if it does so, *.  *. Notwithstanding the foregoing, Sears is not required to *.

3.PRICES.

Beginning on April 28, 2003, and continuing *, and exclusive of any rebates, subsidies, discounts and other payments Seller makes to Sears under this Agreement, Seller and its majority-owned subsidiaries shall sell the Products to Sears at the First Cost Price.

The First Cost Price shall include: (a) all costs of shipping and insuring the Products to the F.O.B. Point, and (b) Seller’s cost of complying with Sears’ packaging and labeling requirements and assembly.  The parties shall negotiate in good faith to determine the First Cost Price of any Products supplied by Seller or any of its majority-owned subsidiaries which are not included on Exhibit A as of the Effective Date.

Notwithstanding the foregoing, if increases in any component of Seller’s * or * cause Seller’s cost of manufacturing the Products to increase for more than * (the “Trigger Period”) by more than *% over the cost of manufacturing in the prior * (a “Material Cost Increase”), then Seller may request a temporary increase in the First Cost Prices of the Products, such increase to equal no more than * percent (*%) of the increase in Seller’s manufacturing cost that is attributable to the increase in Seller’s * or * in excess of the *% increase.  For example, if increases in Seller’s * or * cause Seller’s cost of manufacturing the Products to increase from an average of $*/unit for * to $* for more than * in *, then Seller may request a temporary price increase of $*/unit (*% of the increase in excess of *% over the * cost of production).  If Seller requests a temporary price increase, Seller will permit Sears’ independent auditors to audit Seller’s books and records relating to the Material Price Increase, including all applicable supply contracts and hedging transactions, to verify the amount and cause of the Material Cost Increase and the proposed price increase. Sears’ independent auditors will execute the confidentiality agreement in the form attached as Exhibit I prior to conducting any audit and shall not disclose to Sears any information other than to verify or dispute Seller’s contentions regarding the Material Cost Increase and the proposed price increase. If Sears accepts the temporary price increase, Seller will (i) notify Sears as soon as the * and/or * cease to account for the Material Cost Increase, and the First Cost Prices will return to their previous levels retroactive to the date of such cessation, and (ii) continue to permit Sears’ independent auditors to audit Seller’s books and records to monitor the Material Cost Increase.  If Sears declines the temporary price increase, Seller may terminate this Agreement upon one hundred eighty (180) days’ written notice, provided that during such notice period Seller shall continue to fulfill its obligations hereunder.  Any price increase pursuant to this paragraph shall be retroactive to the first day of the Trigger Period.

4.PRODUCT CHANGES

Seller shall provide Sears no less than six months’ written notice or such shorter period as

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

7

may be mutually agreed in writing by Sears Authorized Representative and Seller Authorized Representative, and obtain Sears’ written approval from an Authorized Sears Representative before implementing any Product Change.  “Product Change” is any change to a Product that impacts its performance, design, packaging, tags, labels, hangers, containers used in connection therewith, and/or all literature pertaining to the Product.  Sears and Seller shall negotiate in good faith to develop an action plan with respect to any Product which Sears and Seller agree should be subject to a Product Change.

5.MANUFACTURING AND DELIVERY TERMS, AND RECOURSE PAYMENTS.

5.1.Manufacturing Products.

Seller and its majority-owned subsidiaries shall supply Products that meet or exceed the following (collectively the “Product Specifications”).

•any feature specifications described in Exhibit B;

•the final written technical and performance specifications agreed to by Sears and Seller for the Sears Branded Products;

•all industry or government standards applicable to the Products, as modified from time to time (such as UL, CPSC, ANSI and other standards for safety and efficiency), unless Sears and Seller agree to deviate from such standard(s) and their agreement is documented in a signed writing that identifies the standard(s) from which the applicable Products shall deviate;

•any final performance claim that Seller makes or has made in writing to Sears in connection with a Sears Branded Product; and

•any final performance claim that Seller makes or has made in writing in connection with a Product that is not a Sears Branded Product.

•in the case of Craftsman and Craftsman Professional Products, manufactured in a manner to permit “Made in U.S.A.” claim.

Sears has approved the Product Specifications for all Sears Branded Products listed on Exhibit A as it exists on the Effective Date.  Any changes to Product Specifications must be approved in advance in writing by an Authorized Sears Representative and an Authorized Seller Representative.

Seller shall regularly test the Products to ensure that the Products meet the Product Specifications. The timing and protocol for such testing must be approved in advance in writing by the Sears Lab.

The term “Specifications” in the UTC shall be deemed to include the Product Specifications.If, after Specifications testing, Sears determines that any Product fails to meet

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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the Product Specifications, Seller shall, with Sears’ reasonable assistance, redesign the Product to meet or exceed the Product Specifications within sixty (60) days after Sears’ delivering written notice to Seller.

5.2.Delivery.

(a)Purchase Order Lines; Order Completion; On Time Delivery.  This Section 5.2(a) shall be effective as of May 25, 2003 and shall continue throughout the balance of the Term

“Purchase Order Line” means a line in a Purchase Order that specifies the Product(s) and quantity of Product(s) being ordered.  The number of Purchase Order Lines included in a Purchase Order is equal to the number of different items being ordered (e.g., if Sears issues a Purchase Order for 300 units of item 12345 and 220 units of item 56789, then the Purchase Order contains two Purchase Order Lines).

Seller shall use its best efforts to fill each Purchase Order Line:

•on time (i.e., delivery within the applicable Shipping Window) and

•complete (i.e., delivery of the Acceptable Quantity of the applicable Product).

For Domestic Products, Seller is responsible for loading the Domestic Products on a trailer at the Delivery Point.  For Import Products, Seller is responsible for loading the Import Products on a container and clearing them through customs.

If in any calendar year of the Term the number of Non-Complying Lines exceeds that year’s Maximum Allowable Non-Complying Lines, then for each Non-Complying Line in excess of the Maximum Allowable Non-Complying Lines Seller will pay Sears the applicable Compliance Fee for that year.  A “Non-Complying Line” is a Purchase Order Line that Seller does not fill on time or does not fill complete.  The Maximum Allowable Non-Complying Lines for a year is the total number of Purchase Order Lines issued by Sears during that year multiplied by the applicable Allowable Non-Compliance Percentage listed on Exhibit C.  The Compliance Fee for each year equals A´B, where

A = the *, calculated by dividing the * by the *; and

B = *%.

Seller will immediately notify Sears if there is a reasonable likelihood that Seller may not meet a required Ship Date.  Seller will accurately complete such paper work and/or electronic communications for each shipment (e.g., bills of lading, packing lists and UCC 128 labels) as Sears periodically requires. The quantity stated by Seller for each Product on the advance shipping notice (“ASN”), invoice, bill of lading, packlist/manifest and any other documentation will equal the actual quantity shipped by Seller.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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Commencing with the fiscal month May 25, 2003 through June 28, 2003 and continuing throughout the balance of the Term, Seller shall deliver to Sears on a monthly basis the total Non-Complying Lines for the prior month and for the year-to-date.  Sears shall then have 30 days after receiving such report to either accept or reject the number of Non-Complying Lines listed therein, after which time if Sears does not respond the Non-Complying Lines listed in the report shall be deemed to have been accepted by Sears.

(b)Delivery Point.  All Products shall be shipped F.O.B. (as that term is used in the Illinois Uniform Commercial Code) Sears’ delivery point (the “F.O.B. Point”). The F.O.B. Point for Domestic Products shall be *; the F.O.B. Point for Import Products shall be *.  Seller shall be responsible for all freight costs attributable to transporting Import Products to the F.O.B. Point.  All risk of loss shall remain with Seller until the Products are delivered to the F.O.B. Point.  In addition, Seller is solely responsible for any damage to the Products attributable to improper loading and improper packaging from the time the Product is delivered to the F.O.B. Point until it reaches a Sears distribution facility (e.g., Sears DDC or RRC).  Absent a specific amendment to this provision, any language in a Purchase Order selecting a Seller or a carrier F.O.B. Point shall not apply.

6.PAYMENT TERMS.

(a)Domestic Products.  Seller will invoice Sears via EDI on the date Seller issues its Advance Shipping Notice (“ASN”) to Sears.  Seller will issue an ASN via EDI on the date the Domestic Product departs the F.O.B. Point. Sears will pay the undisputed portion of each invoice so that Seller receives payment on the * (*^th) day after the date of the ASN; provided that if that day is a Saturday, Sunday or bank holiday, Sears will pay on the next banking day.

(b)Import Products.  Seller will invoice Sears upon delivery of Import Products to the F.O.B. Point.  Sears will pay the undisputed portion of each invoice *.

7.PRODUCT LINE TRACKING, REPORTING AND SALES SUPPORT.

7.1.Single Point of Contact.

Seller shall provide Sears with sufficient assistance and resources to manage Sears’ account with Seller and to manage Seller’s administrative and other obligations under this Agreement.  Seller shall designate at least onefull time contact person, who is acceptable to Sears, per Sears’ format (minimum $20 million in sales per calendar year) to oversee this relationship.

7.2.Periodic Reporting.

(a)Intentionally Omitted.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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(b)Seller-Made Eligible MHT Percentage.  Sears will share with Seller on an annualbasis the Seller-Made Eligible MHT Percentage. No more than once during each year of the Term, Sears will permit Seller’s independent auditor to audit Sears’ books and records relating to the calculation of the Seller-Made Eligible MHT Percentage to verify that Sears has satisfied its obligations under Section 2.2. The independent auditors shall execute the confidentiality agreement in the form attached as Exhibit I prior to conducting any audit and shall not disclose to Seller any information other than whether Sears has satisfied its obligations under Section 2.2 and if not the nature and scope of the failure to so comply.

(c)Seller Performance Evaluation.  Seller shall survey, on an annual basis, Sears’ personnel concerning Seller’s performance during the prior year. Within 45days of the end of each calendar year, Seller shall deliver to Sears a written evaluation of Seller’s performance under this Agreement during the previous year, incorporating Sears’ survey responses and other comments relating to Seller’s performance.  Sears shall deliver to Seller twice annually a mid-year vendor score card.

(d)General Marketing Reports.  Sears and Seller will use commercially reasonable efforts to provide additional marketing reports to each other on a regular basis as shall be mutually agreed by the parties.

(e)Market Research.  Sears and Seller will share the results of all relevant, non-confidential market research studies that either party conducts or commissions relating directly to Sears Branded Products.

All such reports and surveys are for informational purposes only and will not be the basis for any subsidy or other calculations under this Agreement.  All such reports and surveys shall, unless otherwise agreed to by Sears and Seller, be prepared on a consistent basis and, to the extent available and meaningful, shall include a comparison to the prior year’s performance for the period in question.  Furthermore, all such reports and surveys, shall be “Confidential Information” of the disclosing party as defined in Section 15.1.  This provision shall not require Sears or Seller to provide, and Sears and Seller shall not provide, any information which would violate any applicable federal, state or local statutes, common law, rules, regulations, ordinances or order of a court of competent jurisdiction (collectively, “Applicable Law”), or any agreement legally binding upon Sears or Seller.

7.3.Training Support.

Seller shall provide sales support representatives to provide training sessions for Sears’ personnel at such location(s) and in such manner as shall be mutually agreed by the parties.  Seller’s support representatives shall have adequate sales and technical expertise on all Product, application and usage issues to train Sears’ personnel reasonably during these support calls.  Training shall focus on Product knowledge and features, Product uses, competitive Product offerings, pricing issues, promotions, marketing initiatives and customer complaints.  As reasonably requested by Sears, and consistent with the parties’ past practice, Seller will provide

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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training content regarding Product features in the form of articles for Sears’ Homeworks magazine and e-learning materials.

7.4.After-Sale Support.

Seller shall maintain at least one dedicated toll-free telephone number exclusively for Sears’ customers and Sears’ associate support and assistance relating to the Sears Branded Products. The call center(s) (each a “Call Center”), answering such calls shall be open from 8:00 a.m. to 5:00 p.m. Monday through Friday Eastern Standard or Daylight Time,as applicable, except for national holidays.  The Call Center must have, or have the capability to connect Sears’ customers and Sears’ associates directly with, English-speaking and Spanish-speaking personnel knowledgeable in all technical and functional aspects of the Sears Branded Product Line.  After the first year of the Term, Sears and Seller will evaluate criteria to be mutually agreed upon to determine the continuing need for Spanish-speaking personnel.  Following a request by the Sears buyer, and after Seller consumes its then-existing inventory of packaging materials in the manufacturing process, on all packaging materials subsequently acquired or manufactured by Seller, Seller shall print the applicable telephone number, along with the model number, current industry marking standard, and Searsweb site address (www.craftsman.com) on all Sears Branded Product packaging and literature. All data and information related to the Sears Branded Products that Seller collects in connection with these telephone and Internet support centers, including, without limitation, any customer names, customer addresses and warranty card information, shall be deemed “Sears Information” as defined in Section 14.4(b).

7.5.Telephone Numbers; Internet Addresses.

Effective upon this Agreement’s expiration (without renewal or extension) or termination and subject to approval by the applicable telephone company (which approval the parties will use their best efforts to obtain), Seller hereby assigns to Sears all of Seller’s right, title and interest in and to all telephone numbers (the “Sears Numbers”) used in connection with Sears Branded Products under Section 7.4 above.  Upon the expiration or termination of this Agreement, Seller shall have no further right, obligation, title or interest in or to those Sears Numbers, but shall remain liable for all fees and costs relating to those Sears numbers incurred prior to the effective date of the assignment.  Such assignment shall not be effective unless accepted by Sears, in its sole discretion.  Prior to its acceptance of the assignment, Sears shall have no liability or obligation whatsoever in connection with the Sears Numbers.  Seller acknowledges and agrees that as between Seller and Sears, upon this Agreement’s expiration or termination, Sears shall, if it so elects, have the sole right to and interest in those Sears Numbers, which right may be exercised by Sears providing written notice to Seller of its intention to exercise the right within thirty (30) days after the expiration or termination of this Agreement.  If Sears exercises its rights pursuant to this Section 7.5, and solely for the purposes thereof, Seller shall direct the telephone company with which Seller has placed listings of the Sears Numbers to assign the Sears Numbers and listings to Sears (or Sears’ designee), and to sign and deliver any documents and take any actions as may be reasonably necessary to effectuate this assignment.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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8.VOLUME INCENTIVE REBATES.

In addition to all other Seller support provided under this Agreement, Seller shall provide volume incentive rebates (“Volume Incentive Rebates” or “VIR”) to Sears.  Volume Incentive Rebates shall be calculated based on Sears’ Total Purchases of Products during the applicable VIR/Subsidy Measurement Period compared to Sears’ Total Purchases of Products during the same period from the previous year (e.g., the second, third and fourth quarters of fiscal 2003 would be compared against the second, third and fourth quarters of fiscal 2002). The applicable incremental increase of the Total Purchases over the previous year shall then be multiplied by the applicable “VIR Percentage” listed below.

Percent of  Total Purchases	VIR Percentage
Above *% - *%	*%
Above *%	* % of the first *% - *%, and *% of the excess over *%

For purposes of calculating the VIR, any purchases of Products prior to the Effective Date shall be restated using the First Cost Prices of the applicable Products

Examples (with all Total Purchases restated to reflect the First Cost under this Agreement):

1.If Sears’ Total Purchases were $* for fiscal 2003 and $* for fiscal year 2004, then the VIR for 2004 would be $* ($*, the excess of the increase in Total Purchases over *%, multiplied by *%, the applicable VIR percentage because the year over year increase in Total Purchases was *%).

2.If Sears’ Total Purchases were $* for fiscal 2003 and $* for fiscal 2004, then the VIR for 2004 would be $* ($* (the portion of the year over year increase in Total Purchases that was greater than *% but less than or equal to *%) multiplied by *%, plus $* (the portion of the year over year increase in Total Purchases that was greater than *%) multiplied by *%).

Sears shall be entitled to collect from Seller any VIR on or after the fifth business day after the end of the VIR/Subsidy Measurement Period in which the VIR is earned.

9.SUBSIDIES AND MARKETING SUPPORT.

9.1.Promotional Plans.

Before the beginning of each year of the Term, Sears and Seller shall conduct a joint planning session (an “Annual Planning Session”) to set growth targets and discuss new or existing Products or strategies designed to increase the volume under the program for the coming year, discuss strategies and assign responsibilities for marketing support, and discuss capacity estimates for the relevant calendar year.   During each year of the Term, Sears and Seller shall meet at least two additional times for seasonal updates to the plan prepared in the previous Annual Planning Session.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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9.2.Sales Promotion Subsidies.

In addition to all other Seller support provided under this Agreement, Seller shall pay to Sears or its designee marketing subsidies (“Sales Promotion Subsidies”) of a total of $* in the last three quarters of fiscal 2003, $* in 2004, $* in 2005 and $* in the first fiscal quarter of 2006 (each a “Sales Promotion Subsidy”). Sears and Seller shall meet periodically to plan how to use the Sales Promotion Subsidies.  For each portion of the Sales Promotion Subsidy to be spent as mutually agreed by the parties, Seller will pay Sales Promotion Subsidies (i) at Sears’ direction, to third parties providing goods or services to Sears or (ii) to Sears directly, pursuant to the terms of a promotional agreement issued by Sears.  If in any calendar year (or fiscal quarter, in the case of the first quarter 2006 Sales Promotion Subsidy) Seller does not pay the full Sales Promotion Subsidy for that year or quarter, Seller shall pay the shortfall to Sears by wire transfer no later than the fifth business day after the end of the fiscal period to which the Sales Promotion Subsidy relates.

9.3.Packaging and Product Development Information and Material.

Seller shall consult with Sears and obtain Sears’ prior written approval before developing or implementing any changes to the packaging, advertising and marketing materials, or owners or other manuals used in connection with the any or all of the Sears Branded Products. Notwithstanding the foregoing, Seller shall be solely responsible for the adequacy of such materials and Sears shall have no liability for any suggested changes proposed by Sears which Seller adopts.

9.4.Other Marketing Support.

Periodically during the Term, Sears and Seller shall negotiate in good faith to determine other subsidies and marketing support that, upon agreement of the parties, Seller shall provide to Sears to support the Products.  This support, may include, without limitation, the following:

(a)Marketing and Promotional Materials.  Seller shall provide Sears with a reasonable supply of Seller’s standard marketing and promotional items for the Product Lines, including, without limitation, point-of-sale brochures, laminated hang cards, signage (including, without limitation, c-channel, point-of-sale, special event, endcap, promotional and overhead signage), sufficient samples to support public relations and promotional activity, and other similar materials.

(b)Plan-O-Gram.  Seller shall, at Sears’ sole discretion, either provide Plan-O-Gram development support (including, without limitation, Product samples and imaging) at reasonable intervals during the Term outlining suggested placement, layout and presentation of Products, or reimburse Sears for all reasonable costs and expenses incurred in developing the Plan-O-Gram support.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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(c)Internet Efforts.  Seller shall support Sears’ internet marketing, distribution, logistic, accounting and sales efforts.  If requested by Sears, Seller shall include a hyper link from Seller’s web site(s) to the web site(s) designated by Sears.  The parties shall agree on the appearance and location of such hyperlink within the website.  Seller’s support of Sears internet marketing and sales efforts shall include, without limitation: (i) providing reasonable graphics and content support for any Sears’ designated web site relating to the Products, and (ii) reimbursing Sears for the cost Sears pays to add Products to Sears’ websites, which cost currently approximately ranges from $150 to $485 per product.

9.5.Coop Advertising Subsidy.

Seller will pay Sears a Coop Advertising Subsidy (the “Coop Advertising Subsidy”) equal to * percent (*%) of Sears’ Total Import Purchases during each VIR/Subsidy Measurement Period. “Total Import Purchases” means the aggregate First Cost Price of all Products that are manufactured outside the United States that Sears purchases from Seller during the applicable VIR/Subsidy Measurement Period. On or after the fifth business day after the end of each VIR/Subsidy Measurement Period, Sears will collect the Coop Advertising Subsidy for the prior period by debit memo.  If the Coop Advertising Subsidy exceeds the amounts then payable from Sears to Seller, Seller will immediately pay such excess to Sears by wire transfer.

9.6Promotional Support Subsidy.

Beginning April 28, 2003 and continuing throughout the balance of the Term, Seller will pay Sears monthly Promotional Support Subsidies (“Promotional Support Subsidies”) equal to * percent (*%) of the prior month’s Total Purchases of Domestic Products. On or after the fourth business day of each month, Sears will issue a debit memo for the prior month’s Promotional Support Subsidy. If the Promotional Support Subsidy for any month exceeds the amounts then payable from Sears to Seller, Seller will immediately pay such excess to Sears by wire transfer.

9.7Impact Socket Subsidies.

Seller will pay Sears a Marketing Subsidy equal to * percent (*%) of Sears’ Total Purchases of impact sockets during each VIR/Subsidy Measurement Period and a Store Support Subsidy equal to * percent (*%) of Sears’ Total Purchases of impact sockets during each VIR/Subsidy Measurement Period (collectively, the “Impact Socket Subsidies”).  On or after the fifth business day after the end of each VIR/Subsidy Measurement Period, Sears will collect the Impact Socket Subsidies for the prior period by debit memo.  If the Impact Socket Subsidies exceed the amounts then payable from Sears to Seller, Seller will immediately pay such excess to Sears by wire transfer.

9.8Warranty Credit Subsidy.

To offset Sears’ costs associated with providing Product exchanges to customers who return ratchets, on or before December 31, 2003, 2004 and 2005, Seller will pay Sears by wire

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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transfer a “Warranty Credit Subsidy” of $*, and on or before *, Seller will pay Sears by wire transfer a Warranty Credit Subsidy of $*.  The Warranty Credit Subsidy will be decreased by * percent for each full * percent reduction in the annual Ratchet Allowance Rate below the 2002 Ratchet Allowance Rate.  The “Ratchet Allowance Rate” is the quotient obtained by dividing Sears’ Craftsman and Craftsman Professional ratchet allowances during the applicable period by Sears’ total sales of Craftsman and Craftsman Professional ratchets during the applicable period as calculated in SPRS.  As of the Effective Date, SPRS reports the Ratchet Allowance Rate as “Sales Adjustments by Reason—Craftsman Lifetime Warranty.

10.EPIDEMIC RETURNS.

10.1.“Epidemic Return” means (i) a Product or Product Line that is subject to a recall or (ii) a * percent or greater increase (e.g., an increase from *% to *%) in the rolling * returns rate for a Product or Product Line over the prior * rolling * returns rate. The returns rate is calculated by dividing (a) the total number of units of a Product (or of Products in a Product Line) that are returned to Sears by customers during the previous * by (b) the total number of units of a Product (or of Products in a Product Line) that are sold by Sears to customers during the previous *.

10.2.Epidemic Return Payments.

Sears may, at any time during or after the Term, return to Seller all Epidemic Returns.  Seller shall reimburse Sears for the full “Return Cost” of each Epidemic Return Sears tenders to Seller (collectively, the “Epidemic Return Payments”).  “Return Cost” means *% of  the First Cost of the Epidemic Return, plus Sears’ actual freight costs.

11.TRANSITION MANAGEMENT.

Seller shall provide Sears no less than six (6) months’ written notice or such shorter period as agreed to in writing by a Sears Authorized Representative and obtain Sears’ written approval before discontinuing any Product production.  Sears and Seller shall negotiate in good faith to develop an equitable program, consistent with past practice, for liquidating any inventory of discontinued Products or any Products that are the subject of a demand made by Sears pursuant to Section 14.4(c).

12.SEARS INVENTORY PURCHASE OBLIGATIONS

Upon the termination or expiration of this Agreement, Sears will purchase from Seller the following:

(a) all Products listed on any Purchase Orders issued by Sears prior to such termination or expiration;

(b) *;

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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(c) *; provided, however, that Sears shall not be required to purchase pursuant to this Section 12(c) *.

Seller shall not be liable to Sears for Administrative Fees and Compliance Fees related to late delivery or non-delivery of Products pursuant to this Section 12.  In the event that Seller *.  Seller is hereby authorized by Sears to use the Sears Marks and Sears Trade Dress solely for the sale or other disposition of remaining inventory * in accordance with this paragraph.

Sears’ purchases of Products pursuant to this Section 12 will be counted for purposes of Sections 9.5, 9.6 and 9.7, but not for purposes of Section 8.

13.TERM.

The term of this Agreement (the “Term”) shall begin on the Effective Date and shall end, unless sooner terminated under the terms of this Agreement, on the * anniversary of the Effective Date (the “Expiration Date”).  Orders placed by Sears with Seller during the Term pursuant to Section 2.4 are subject to this Agreement.

On or before *, Sears and Seller shall meet to evaluate the MHT market and their relationship and to discuss in good faith the terms under which they might choose to continue to do business *.

14.INTELLECTUAL PROPERTY.

14.1.Patents.

Seller represents and warrants that the manufacture, usage and sale of the Products are not in violation and are not alleged to be in violation of any patent, patent application, trademark, copyright, trade secret or other intellectual property right of any third party.

14.2.Exclusive Features/Products.

For the period(s) stated on Exhibit D, Seller will not directly or indirectly, under any brand name, sell any Product listed on Exhibit D or any Mechanics Hand Tool including any feature listed on Exhibit D to the Retail Market. “Retail Market” means (i) on-line and catalog retailers, (ii) businesses that generally meet the retail market characteristics listed on Exhibit H and (iii) businesses that directly or indirectly sell products to businesses described in clause (i) or (ii), provided that solely for purposes of this Agreement the Retail Market shall not include NAPA.  Breach of this Section 14.2 is a material breach of this Agreement.

14.3.Work Product.

Any marketing materials, advertising materials, promotional materials, point of sale displays, packaging, customer information and material, warranty card information, copyrights, tradenames, trademarks, trade dress, servicenames, servicemarks and other materials relating to

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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any Sears Branded Products, which materials are prepared, developed or created by or on behalf of Sears or Seller or any of their personnel, agents or contractors in connection with this Agreement or otherwise in connection with the Sears Branded Products (collectively, “Work Product”), shall be exclusively owned by Sears.  Sears may, in its sole discretion, use, reproduce, or distribute any Work Product in any manner whatsoever, without further obligation or liability to Seller.  Seller acknowledges and agrees that all Work Product shall be considered “work made for hire” as that term may be defined from time to time in Section 101 of the Copyright Act, 17 U.S.C. Section 101 (or any successor provision), that Sears shall be deemed the author of the Work Product, and that Sears shall be the exclusive owner of all right, title and interest, including all copyrights, in and to the Work Product.  If, for any reason, the Work Product is found not to have been created as work made for hire, Seller hereby assigns without limitation all right, title and interest in and to the Work Product to Sears, including all copyrights and other intellectual property rights associated with any Work Product and the right to bring suit on all causes of action relating to any Work Product, including for copyright infringement of, the Work Product.  Seller further agrees to execute and deliver to Sears any and all further documents deemed by Sears to be helpful in documenting, effectuating or recording the foregoing assignment.  Seller shall not, and shall not permit any third party to, disclose or provide any of the Work Product to any Person other than Sears, including but not limited to disclosure of Work Product as a part of any master mailing list or other compilation of customer or demographic information.

Seller hereby grants Sear a perpetual, irrevocable, worldwide license to use in any manner, including to reproduce, sell and sublicense, any owner’s manuals, web site graphics, web site content support videos and web site content related to any Sears Branded Product, which materials are prepared, developed or created by or on behalf of Seller or any of its personnel, agents or contractors in connection with this Agreement or otherwise in connection with the Products.

14.4.Sears Marks and Sears Trade Dress.

(a)Seller hereby acknowledges that (i) the trademarks, service marks and trade names listed on Exhibit E (collectively, the “Sears Marks”), and (ii) any distinctive trade dress of any Sears Branded Products purchased from Seller by Sears (the “Sears Trade Dress”) constitute valuable intellectual property solely and exclusively owned by Sears.  During the Term of this Agreement only, Sears hereby grants to Seller a non-exclusive, limited license to use the Sears Marks and Sears Trade Dress for the sole purpose of affixing the Sears Marks or incorporating the Sears Trade Dress into (1) any Products supplied to Sears by Seller, in accordance with Sears’ instructions and (2) any Work Product developed, prepared or supplied by or on behalf of Seller relating to any Sears Branded Products, including but not limited to advertising materials, promotional materials, point of sale displays or packaging. Seller shall not distribute to any Person other than Sears any Products or any Work Product relating to any Products bearing the Sears Marks or incorporating Sears Trade Dress or Sears’ other Intellectual Property Rights without Sears’ specific written authorization prior to such distribution.  Such limitation of distribution rights shall not affect the distribution rights granted to Seller in the Industrial Contract.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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(b)Seller shall not claim any right, title or interest in, or challenge Sears ownership of, (i) the Sears Marks, (ii) the Sears Trade Dress, (iii) the Work Product, or (iv) any lists, files or other information or material provided or made available by Sears (or by Sears customers in connection with purchases of Products) for use by Seller (“Sears Information”).  Seller recognizes and acknowledges that the use of any Sears Information shall not confer upon Seller any right or interest therein.

(c)Seller shall use the Sears Information only in the performance of its obligations under this Agreement and in accordance with this Section 14.  Upon the expiration or termination of this Agreement, or at any time during the Term upon demand by Sears, Seller shall immediately stop using all Sears Marks, Sears Trade Dress, Sears Work Product and Sears Information and shall transfer to Sears all Work Product produced and all other materials containing or based on Sears Information. Should Sears demand that Seller stop using Sears Marks, Sears Trade Dress, Work Product, Sears’ Intellectual Property and Sears Information in accordance with this subsection, Seller shall have no obligation to pay damages for any failure to supply Sears Branded Products that is prevented by such demand.

(d)Nothing in this Agreement shall be construed to bar Sears from protecting its rights to the exclusive ownership of Sears Information against infringement or appropriation by any party or parties, including any use by Seller not expressly authorized by this Agreement.  Seller acknowledges that Sears Information possess a special, unique and extraordinary character which makes it difficult to assess the monetary damage Sears would sustain in the event of unauthorized use thereof.  Seller agrees and acknowledges (i) that irreparable injury would be caused to Sears by unauthorized use of Sears Marks, Sears Trade Dress, Work Sears Branded Product or Sears Information, (ii) that if this Section 14 is breached by Seller there would be no adequate remedy at law and (iii) that in the event of such breach, a temporary restraining order or preliminary or permanent injunctive relief, in each case without bond, would be appropriate.  Seller waives any right it may have to require Sears to post a bond in connection with any such order.

14.5.Seller Marks and Seller Trade Dress.

Sears hereby acknowledges that the trademarks, service marks and trade names listed on Exhibit F (the “Seller Marks”) constitute valuable intellectual property and, as between Sears and Seller, are solely and exclusively owned by Seller.  Sears shall not claim any right, title or interest in, or challenge Seller’s ownership of, the Seller Marks.

14.6.Innovations to Mechanics Hand Tools.

Seller agrees to consult with Sears periodically during the Term in the processes of developing new Mechanics Hand Tools, enhancements, innovations, technological

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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improvements and modifications to Mechanics Hand Tools and redesigns of Mechanics Hand Tools (collectively “Innovations”) to the extent such Innovations are owned or licensed by Seller or its majority-owned subsidiaries. As between Sears and Seller, Seller shall own all right, title and interest in and to those Innovations that Seller solely initiates, solely develops or solely commissions, or that are proposed to Seller by a third party, without any direction, input or assistance from Sears, during the Term.  Any and all Product evaluations performed by Sears or its authorized representatives shall not qualify as direction, input and/or assistance in or to the Innovations and Sears shall not claim any right, title and interest in, or challenge Seller’s ownership of such Innovations.

*

(c)*.  Sears and Seller acknowledge that the * and * applicable to any * or * will be subject to *.  Sears and Seller further acknowledge their expectation that the * of any such * will be *.

(d)*.

15.CONFIDENTIALITY.

15.1.“Confidential Information” means any information, whether disclosed in oral, written, visual, electronic or other form, that one party (the “Disclosing Party”) discloses to the other party (the “Receiving Party”), that relates to or is disclosed in connection with the parties’ performance under this Agreement and that is or reasonably should be understood by the Receiving Party to be confidential or proprietary to the Disclosing Party, including information concerning the Disclosing Party’s sales, pricing, costs, inventory, operations, employees, current or potential customers, financial performance or forecasts and business plans, strategies, forecasts or analyses, warranty card information, manufacturing technologies or processes, software (including all documentation and code), hardware or system designs, architectures or protocols, Sears Branded Product specifications, any New Product information, any Innovations or the terms of this Agreement.

15.2.Treatment of Confidential Information.

Sears and Seller shall each use the other party’s Confidential Information and reproduce materials containing Confidential Information only as necessary to perform its obligations under this Agreement.  Sears and Seller shall restrict disclosure of Confidential Information to its personnel who have a need to know such information to perform the parties’ obligations under this Agreement and who have been advised of the obligation not to disclose Confidential Information. The Receiving Party is liable for any unauthorized disclosure or use of Confidential Information by the Disclosing Party’s personnel.  Within ten (10) days after receiving the Disclosing Party’s written request, the Receiving Party shall: (a) destroy or return (as instructed by the Disclosing Party) any materials containing Confidential Information, and (b) certify to the requesting party that it has satisfied its obligations under this Section 15.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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15.3.Exceptions to Confidential Treatment.

General.  The obligations under this Section 15 do not apply to any Confidential Information that the Receiving Party can demonstrate:

is or becomes publicly available without the Receiving Party’s breach of this Agreement;

is independently developed by the Receiving Party without using any Confidential Information; or

is received by the Receiving Party from a third party that does not have an obligation of confidentiality to Sears.

Legal Requirements.  The Receiving Party may disclose Confidential Information to the extent that it is required by Applicable Law to be disclosed. The Receiving Party shall notify the Disclosing Party a reasonable time prior to disclosure and allow the Disclosing Party a reasonable opportunity to seek appropriate protective measures.

Burden of Proof.  The Receiving Party shall have the burden of proving the applicability of the foregoing exceptions to this Section 15.

16.MISCELLANEOUS.

16.1.Representations and Warranties.

Each party represents and warrants that it has the right, power and authority to grant the rights provided under this Agreement and to perform its obligations under this Agreement, and that the warranty’s party execution, delivery and performance of this Agreement have been duly authorized and will not violate any other agreement, restriction, or Applicable Law or by which the party is bound.

16.2.No Assignment or Sublicense; Binding Effect.

This Agreement and all its rights and duties hereunder are personal to Seller and shall not, without the written consent of Sears, be transferred, assigned, sublicensed or otherwise encumbered by Seller or by operation of law.  Notwithstanding the foregoing, Seller may upon forty-five (45) days’ advance written notice to Sears assign this Agreement to a direct or indirect wholly-owned subsidiary of Danaher Corporation (a “Permitted Assignee”), provided that any such assignment shall only be valid so long as the Permitted Assignee remains a direct or indirect wholly-owned subsidiary of Danaher Corporation.

A Change of Control shall constitute an assignment of this Agreement.  Notwithstanding anything to the contrary in the preceding paragraph, Seller or, if Seller has assigned this Agreement to a Permitted Assignee as permitted by this Section, its Permitted Assignee (as applicable, the “Assignor”) may assign this Agreement without Sears’ consent in connection with a Change of Control, except that if any party listed on Exhibit G is a party to the Change of Control, then the Assignor must obtain Sears’ prior written consent to the Change of Control, which Sears may withhold in its sole discretion.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

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For purposes of this Section, “Change of Control” means (i) a sale of all or substantially all of the assets of Seller, whether in a single transaction or a series of transactions; (ii) the merger or consolidation of Seller with or into any corporation or the merger of another corporation into Seller if the effect is that fifty percent (50%) or more of the total voting power entitled to vote in the election of the board of directors of the surviving or new corporation is held by a person or persons other than the shareholders of Seller immediately prior to such transaction; or (iii) the occurrence of any other event which results in fifty percent (50%) or more of the total voting power entitled to vote in the election of the board of directors of Seller being held by a person or persons other than the shareholders of Seller who, individually or as a group, held 50% or more of such voting power immediately prior to such event. If any direct or indirect parent company of Seller (other than Danaher Corporation) or, in the event that Seller has assigned this Agreement to a Permitted Assignee as permitted by this Section, such Permitted Assignee, or any direct or indirect parent company thereof (other than Danaher Corporation), undergoes a transaction described in this definition, that transaction would also be deemed to be a Change of Control.

16.3.Notices.

Notices under this Agreement are sufficient if given by nationally recognized overnight courier service, certified mail (return receipt requested), facsimile with electronic confirmation or personal delivery to the other party at the address below:

If to Sears:	Sears, Roebuck and Co.
	3333 Beverly Road, Mail Station: D3-168B
	Hoffman Estates, Illinois 60179
	Attn.: VP, GMM - Tools
	Facsimile:  (847) 286-4404
With a copy to:	Sears, Roebuck and Co.
	3333 Beverly Road, Mail Station: B6-247A
	Hoffman Estates, Illinois 60179
	Attn.: VP Law, Retail
	Facsimile:  (847) 286-0266
If to Seller:	Easco Hand Tools
	125 Powder Forest Drive
	Simsbury, Connecticut 06070
	Attn.: President, Special Markets Division
	Facsimile: (860) 843-7398
With a copy to:	Wilmer, Cutler & Pickering
	2445 M Street, NW
	Washington, D.C. 20037
	Attn.: Mark A. Dewire
	Facsimile: (202) 663-6363

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

22

Notice is effective:  (i) when delivered personally, (ii) three business days after sent by certified mail, (iii) on the business day after sent by a nationally recognized courier service, or (iv) on the business day after sent by facsimile with electronic confirmation to the sender.  A party may change its notice address by giving notice in accordance with this Section 16.3.

16.4.Recoupment and Setoff; Joint and Several Liability.

“Seller’s Monetary Obligations” under Section 14 of the UTC shall include, without limitation, the VIR, all subsidies and any Epidemic Return Payments.  Sears may, at any time after they accrue, collect Seller’s Monetary Obligations by debit memo.  To the extent a debit memo exceeds the amounts owed by Sears at the time it is issued, Seller shall pay the difference by company check within 30 days after receiving Sears’ debit memo. Easco, Lea Way and Jessie & J shall be jointly and severally liable for any Seller’s Monetary Obligations and for any damages suffered by Sears as a result of Seller’s breach of this Agreement.

16.5.Liquidated Damages.

Seller and Sears hereby agree that the Epidemic Return Payments, Return Costs and other liquidated payments which are due hereunder are not intended by the parties as penalty payments, but are instead, intended as liquidated damages to partially compensate Sears for its losses should Seller fail to meet its required performance levels.  Furthermore, the parties agree that these amounts are reasonable and appropriate because of the difficulty, time and cost of determining Sears actual damages resulting from such performance shortfalls.

16.6.Relationship of the Parties.

The relationship of Seller and its personnel to Sears shall be that of independent contractors, and Seller shall not purport to represent Sears as Sears’ agent, employee or partner in any manner.  All persons that Seller furnishes to fulfill its obligations hereunder shall be the employees, agents and/or subcontractors of Seller and shall not be the employees or agents of Sears.  Seller shall have exclusive control over its employees and agents and over their labor and employee relations and policies relating to wages, hours and working conditions.  Seller is solely responsible for all salaries and other compensation of all of its employees and agents, and for making all deductions and withholdings and paying all contributions, taxes and assessments for their salaries and other compensation.  Seller has the exclusive right to hire, transfer, suspend, lay off, recall, promote, discipline, discharge and adjust grievances with its employees and agents.  Seller shall have no authority to enter into any contract or incur any expense or obligation of any kind in Sears’ name.

16.7Public Disclosure.

Seller acknowledges that Sears requires manufacturers of Sears Branded merchandise to reinforce the Sears brand names as opposed to emphasizing the manufacturers who make Sears

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

23

Branded merchandise.  Except as permitted under the terms and conditions of this Agreement or with Sears’ prior written consent, Seller will not disclose the existence or terms of this Agreement or any other information regarding Seller’s supply of the Sears Branded Products to Sears in any advertising, promotional or sales activity or publicity or press release.  Seller will refrain from making any reference to this Agreement or to Sears in the solicitation of business, unless Sears gives its prior written consent to such action and approves any press release or other publicity materials prior to their dissemination. Provided that Seller does not disclose any Confidential Information of Sears, Seller may disclose that it manufactures Sears Branded Products and information about its business with Sears (i) to the extent Seller reasonably believes that disclosure is required under Applicable Law or applicable stock exchange requirements and (ii) in communications with securities professionals.

16.8.Intentionally omitted.

16.9.SPRS.

For purpose of this Agreement, unless otherwise indicated herein, all calculations and measurements with respect to Sears’ purchases, sale of Sears Branded Products, average retail selling prices, and similar information will be measured in units or dollars, as the context requires, and determined by reference to Sears’ Strategic Performance Reporting System or any successor system implemented by Sears (“SPRS”).

16.10.Intentionally omitted.

16.11.Miscellaneous Support.

As reasonably requested by Sears, Seller will provide support and assistance to, and will cooperate with, Sears’ Sears Branded Product services division, Sears’ logistics/delivery organization (including Sears Logistics Services, Inc.), Sears Branded Product Quality Assurance Laboratory, Sears International Marketing, Inc., Sears’ field support organization, and any other individual or group included in or affiliated with Sears.

16.12.Federal Contracting Requirements.

As a federal contractor, Sears is subject to affirmative action and other federal contracting requirements, and is required to include those requirements in its subcontracts for commercial items and commercial components.  Therefore, this Agreement incorporates by reference, and Seller will comply with, the following provisions of Title 48 of the Code of Federal Regulations:  52.219-8, Utilization of Small Business Concerns; 52.222-26, Equal Opportunity; 52.222-35, Affirmative Action for Special Disabled and Vietnam Era Veterans; 52.222-36, Affirmative Action for Handicapped Workers; and 52.244-6, Subcontracts for Commercial Items and Commercial Components.   Furthermore, Seller acknowledges that Sears is committed to helping bring small business, small disadvantaged businesses, and women-owned businesses into the American economic system.  In furtherance of this goal, if Seller uses the services of subcontractors, Seller will use reasonable efforts to involve qualified small, small disadvantaged,

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

24

and women-owned sources in its selection process.

16.13.Arbitration.

Either party may elect to submit to non-binding arbitration any dispute, claim or controversy arising out of, in connection with or relating to this Agreement, including any question regarding its formation, existence, validity, enforceability, performance, interpretation, breach or termination (a “Dispute”). Either party may elect to initiate arbitration by providing written notice to the other party of its intention to submit a Dispute to arbitration.  However, if either party (“Plaintiff”) has initiated a lawsuit against the other party (“Defendant”) prior to delivery of such notice, then the Defendant must deliver written notice to the Plaintiff of its intention to submit the subject matter of the lawsuit to arbitration within thirty days of the date on which the Defendant receives service of process.  If the Defendant does not deliver written notice within such thirty day period, then neither the subject matter of the legal proceedings nor any related claims or counterclaims will be subject to arbitration.

At the time of providing notice of its intention to initiate arbitration, the initiating party shall provide the name of five potential arbitrators, all of whom must be attorneys or retired judges with no less than 15 years’ experience in the practice of law.  Any proposed arbitrator must be neutral and independent.  Within fourteen days thereafter, the responding party must choose one of the five potential arbitrators to arbitrate the Dispute and inform the initiating party of its decision.  The arbitration will be administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules.  The place of the arbitration shall be Chicago, Illinois.  Arbitration shall be completed within 120 days of the time the responding party selects the arbitrator. The arbitrator shall allocate the costs and expenses of the arbitrator and administrative fees of the arbitration among the parties as the arbitrator determines to be appropriate under the circumstances.  Except as provided in the preceding sentence, each party to the arbitration shall bear its own costs and expenses.

This provision does not restrict the right of either party to initiate a lawsuit in a court of competent jurisdiction after the conclusion of the arbitration. If arbitration has been demanded in accordance with the above paragraph, any pending lawsuit shall be stayed until the completion of the arbitration or expiration of the 120-day period set forth above. All issues that may relate to any applicable statute of limitations relevant to any arbitrated Dispute will be resolved as if any action filed by either party was filed on the date of first notification of a request to arbitrate and as if any action resumed by either party was filed on the date the original action was filed.

16.14Governing Law and Forum.

This Agreement will be governed by, and all disputes, claims or controversies relating to, arising out of, or in connection with this Agreement, including any question regarding its formation, existence, validity, enforceability, performance, interpretation, breach, or termination (collectively, “Disputes”) , shall be resolved in accordance with the laws of Illinois without regard to its conflict of laws rules.  Seller and Sears submit to venue and exclusive personal jurisdiction in the federal and state courts in Cook County, Illinois for any Disputes and waive all

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

25

objections to jurisdiction and venue of such courts.

16.15.Costs and Legal Fees.

In the event of any legal proceeding between the parties arising from this Agreement, the substantially prevailing party may recover from the other party all of its reasonable costs and expenses, including but not limited to attorneys’ fees and court costs.

16.16.Entire Agreement.

The agreement between Sears and Seller dated as of March 7, 1988, as amended, is hereby terminated.  This Agreement, which includes the UTC, the Vendor Guide, and each of the Exhibits attached hereto, sets forth the entire agreement and understanding between the parties hereto with respect to the subject matter hereof.  All prior and contemporaneous discussions and negotiations relating to the Sears Branded Products and the Sears Branded Product Lines are merged herein. This Agreement shall not be supplemented, modified or amended except by a written instrument signed by a duly authorized officer of each of Sears and Seller.  Furthermore, this Agreement shall supersede and neither Sears nor Seller shall be bound by any “disclaimers” or “click to approve” terms or conditions now or hereafter contained in any website used by Sears in connection with the Sears Branded Products or this Agreement.  Any terms and conditions in any Purchase Order, order acknowledgement, order acceptance, shipping schedule or similar documentation relating to any Sears Branded Products that contradict this Agreement’s terms and conditions are null and void unless a Sears Authorized Representative and a Seller Authorized Representative sign such documentation.  This Agreement shall be binding upon and inure to the benefit of the successors, representatives and permitted assigns of the parties hereto.  Sears and Seller represent and warrant that they are entering into this Agreement based solely on the provisions set forth herein and not in reliance, in whole or in part, on any claim or representation contained in any RFP Document

16.17.Survival.

All obligations of Sears and Seller which expressly or by their nature survive the expiration or termination of this Agreement, including the obligation of either party to pay any amounts accrued hereunder will continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement and until they are satisfied in full or by their nature expire.

16.18.No Waiver.

This Agreement’s terms, covenants and conditions may be waived only by a written instrument signed by the party waiving compliance.  Any party’s failure at any time to require performance of any provision shall, in no manner, affect that party’s right to enforce that or any other provision at a later date.  No waiver of any condition or breach of any provision, term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of that or any

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

26

other condition or of the breach of that or that provision, term or covenant of this Agreement.

16.19.Construction.

The Section headings of this Agreement are for convenience only and have no interpretive value. All references in this Agreement to “including” shall be interpreted to mean “including, but not limited to,” and unless otherwise indicated all references to a number of days shall mean calendar (and not business) days. E-mail communications will be considered “in writing” for purposes of this Agreement.

16.20.Intentionally omitted.

16.21.Counterparts; Facsimile.

This Agreement may be executed in any number of separate counterparts, all of which, when taken together, shall constitute one and the same instrument, notwithstanding the fact that all parties did not sign the same counterpart.  Each of the parties agrees that a signature transmitted to the other parties or their respective counsel by facsimile transmission shall be effective to bind the party whose signature was transmitted, as a duly executed and delivered original.  Each party further agrees to promptly deliver its original signature pages to this Agreement to counsel for the other parties promptly following execution, but any failure to do so shall not affect the binding effect of such signature.

Signature Page Follows

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omitted portions, marked by “*”, have been separately filed with the Commission.

27

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first set forth above.

SEARS:		SELLER:
Sears, Roebuck and Co.		Easco Hand Tools, Inc.
By:	/s/ Lyle G. Heidemann	By:	/s/ George C. Moore
Name:	Lyle G. Heidemann	Name:	George C. Moore
Title:	EVP/GM	Title:	Vice President
		Lea Way Hand Tool Co., Ltd.
		By:	/s/ George C. Moore
		Name:	George C. Moore
		Title:	Director
		Jessie & J Co., Ltd.
		By:	/s/ George C. Moore
		Name:	George C. Moore
		Title:	V.P.

EX-10.5

Exhibit 10.5

- STRICTLY PRIVATE & CONFIDENTIAL -

DATE:	7/15/03
TO:	Donald E. Doles
FROM:	Bob Piazza
SUBJECT:	Confirmation of Compensation

It is a pleasure to confirm the details of the compensation associated with your appointment to Corporate Vice President, Danaher Business System (DBS) and Corporate Procurement, a position which reports directly to H. Lawrence Culp, Jr.  The details are as follows:

Effective Date:	June 17, 2003
Base Salary:	$220,000 annually, paid over 26 pay periods
Bonus Target:	40% / $88,000 – no change in ICP%
EDIP:	Participation continues
Stock Options:	5,000 options, which will vest at 20% per year over 5 years
	10,000 options, which will vest 100% on the 4th anniversary
	Both option grants subject to Board of Directors approval at its next meeting
Car:	Level One
Club Membership:	We will provide you with full membership at River Run Golf and Country Club.  We will pay the initiation fee for full membership and the corresponding monthly fees.  You will be responsible for other charges associated with your use of the club.  The membership will be established as a company membership.

Congratulations on your new assignment!

Please acknowledge your understanding of these terms by signing on the line below and returning it to me immediately.  You are encouraged to keep a copy of this for your records.

/s/ Donald E. Doles	7/15/03
Donald E. Doles	Date

EX-99.1

Exhibit 99.1

Certification

I, H. Lawrence Culp, Jr., certify that:

1.I have reviewed this report on Form 10-Q of Danaher Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons fulfilling the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 16, 2003		/s/  H. Lawrence Culp, Jr.
		Name:		H. Lawrence Culp, Jr.
		Title:		President and Chief Executive Officer

EX-99.2

Exhibit 99.2

Certification

I, Patrick W. Allender, certify that:

1.I have reviewed this report on Form 10-Q of Danaher Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons fulfilling the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	July 16, 2003		/s/  Patrick W. Allender
		Name:		Patrick W. Allender
		Title:		Executive Vice President – Chief Financial Officer and Secretary

EX-99.3

Exhibit 99.3

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, H. Lawrence Culp, Jr., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, Danaher Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Danaher Corporation.

Date:	July 16, 2003	By:	/s/ H. Lawrence Culp, Jr.
		Name:	H. Lawrence Culp, Jr.
		Title:	President and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Danaher Corporation and will be retained by Danaher Corporation and furnished to the Securities and Exchange Commission or its Staff upon request.

EX-99.4

Exhibit 99.4

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick W. Allender, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, Danaher Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Danaher Corporation.

Date:	July 16, 2003	By:	/s/ Patrick W. Allender
		Name:	Patrick W. Allender
		Title:	Executive Vice President – Chief Financial Officer and Secretary

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Danaher Corporation and will be retained by Danaher Corporation and furnished to the Securities and Exchange Commission or its Staff upon request.

EX-99.5

Exhibit 99.5

DANAHER CORPORATION

2099 PENNSYLVANIA AVENUE, N.W.

12^TH FLOOR

WASHINGTON, D.C. 20006

TELEPHONE (202)-828-0850   FAX (202)-828-0860

FOR IMMEDIATE RELEASE	CONTACT: Andy Wilson
	VP, Investor Relations
	(202) 828-0850

DANAHER CORPORATION ANNOUNCES RECORD

SECOND QUARTER RESULTS

WASHINGTON, D.C., July 17, 2003 — Danaher Corporation (NYSE:DHR) announced today that net earnings for its second quarter ended June 27, 2003 were $125.1 million, 21% above the corresponding 2002 period earnings of $103.7 million.  Diluted earnings per share for the 2003 quarter were $0.79, an increase of 20% over the $0.66 reported for the 2002 second quarter.  Sales for the 2003 second quarter were $1,299.4 million, 13% higher than the $1,146.3 million for the quarter ended June 28, 2002.

                For the six month period ended June 27, 2003, net earnings were $228.3 million, up 22% from the $186.4 million reported in 2002 before the effect of a change in accounting related to goodwill.  Diluted earnings per share for the 2003 six month period of $1.44 increased 19% from the $1.21 in 2002 before the effect of the accounting change.  Net earnings for the 2002 six month period, after the effect of a first quarter $173.8 million one-time non-cash charge for impairment of goodwill, were $12.7 million, or $0.11 per diluted share.  Sales of $2,495.6 million for the 2003 six month period were 16% higher than the $2,150.5 million reported in 2002.

H. Lawrence Culp, Jr., President and Chief Executive Officer, stated, “We are again pleased to report record second quarter results.  Despite the continued sluggish economic environment, we were able to achieve a 20% increase in earnings per share for the quarter.  Sales for the quarter grew 13% compared to last year’s second quarter, driven primarily by revenues from recently completed acquisitions.  Operating cash flow was a record $449.2 million for the six month period and 14% higher than in 2002.  We are optimistic that our targeted growth opportunities, coupled with a continued drive on cost reduction and acquisition integration, will provide positive results for the balance of the year and position us well for the eventual industrial economic upturn.”

Danaher Corporation is a leading manufacturer of Process/Environmental Controls and Tools and Components.  (www.danaher.com)

Statements in this release that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties.  These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the company’s SEC filings.

DANAHER CORPORATION

Results of Operations

(thousands, except per share amounts)

(unaudited)

	Three Months Ended					Six Months Ended
	June 27,		June 28,			June 27,			June 28,
	2003		2002			2003			2002
Net sales	$	1,299,432	$	1,146,326		$	2,495,647		$	2,150,533
Operating costs and expenses:
Cost of sales	774,546		701,908			1,503,362			1,330,092
Selling, general and administrative expenses	323,675		277,374			624,856			516,176
Gain on sale of real estate	—		(2,531		)	(775		)	(2,531		)
Total operating expenses	1,098,221		976,751			2,127,443			1,843,737
Operating profit	201,211		169,575			368,204			306,796
Interest expense, net	13,024		11,308			24,940			22,216
Earnings before income taxes and effect of accounting change	188,187		158,267			343,264			284,580
Income taxes	63,043		54,602			114,994			98,180
Net earnings, before effect of accounting change	125,144		103,665			228,270			186,400
Effect of accounting change, net of tax	—		—			—			(173,750		)
Net earnings	$	125,144	$	103,665		$	228,270		$	12,650
Basic earnings per share:
Net earnings before effect ofaccounting change	$	0.82	$	0.69		$	1.49		$	1.26
Less:  Effect of accounting change	—		—			—			(1.17		)
Net earnings	$	0.82	$	0.69		$	1.49		$	0.09
Diluted net earnings per share:
Net earnings before effect ofaccounting change	$	0.79	$	0.66		$	1.44		$	1.21
Less:  Effect of accounting change	—		—			—			(1.10		)
Net earnings	$	0.79	$	0.66		$	1.44		$	0.11
Average common stock and common equivalent shares outstanding:
Basic	153,185		151,274			153,031			148,223
Diluted	161,201		160,045			160,934			156,994

A complete copy of Danaher’s Form 10-Q financial statement is available on the Company’s website (www.danaher.com)