DHR 256652834

[:MDA:]
[:p id="141631556" name="Scott Davis" type="A" :]

Okay, great. We're going to get started. I feel like I'm echoing. Anyways, thank
you all for getting up this morning for our first presentation of the day with
Danaher. I just want to give a couple of housekeeping items. We are excited to h
ave everybody down here. I think we've got a great show for you the next couple
of days.
The -- there's a knowledge hub out there that has a number of pieces of research
. We put together a special model, modeling and short summary book on -- or one
book that has summaries of each company that is presenting over the next 2 days.
Some of the feedback that we've gotten in this format in the past, the old Q&A
format, is that it's great if you have a strong knowledge of the company. It's n
ot as great if you don't. So for those of you who don't know some of these compa
nies as well, there's a great little summary. It gives a breakdown of revenues b
y business, by geography, a model summary and et cetera, so please see that.
Also, at the end of the day, we tried something relatively new the last couple o
f years where we have an analyst roundtable at 5:00 each day where we get all th
e analysts together. We have north of 50 companies here, and a lot of you are ru
nning around between one-on-ones and different sessions. And so we get everybody
in one room, and we talk about what are the key themes that are percolating up
within the space and how maybe our views have been changed, either increased con
fidence or less confidence.
I just want to give a little bit of a framework for this conference overall and
remind you all, a year ago, when we were hosting this exactly the same time, the
re was a fair amount of uncertainty out there. We didn't have a great sense of E
urope and where we would bottom and at what levels. It was a fairly high, I thin
k, range of outcomes that people had in their models. We didn't have a whole hec
k of a lot of visibility in emerging markets. And we were -- I think the general
consensus was the concern around a government that was increasingly moving towa
rds some anti-industrial policies or, at least, moving further in -- to the left
.
And when I -- when we fast forward and think about the themes from this conferen
ce in the next couple of days, I think there's going to be a greater sense of in
creased confidence out there. Of course, I don't want to steal the thunder of ou
r guests, but I think there's going to be a greater sense of confidence and folk
s are going to be more comfortable dialing in some of their forecasts. And maybe
out of all this, we start to see an increase in things like M&A, which, in this
group, was relatively slow the last 18 months or so.
So that's a great segue into Danaher. Danaher is a company -- I think we've had
a buy on the stock for 6 or 7 years. It's one of those companies that we're neve
r going to apologize for recommending. It's a fantastic management team. It's a
great culture. It's a great set of assets.
There's ebb and flow with the M&A cycle, as you can imagine. So it's not as simp
le as every quarter. They're going to announce an acquisition that's interesting
to folks or buy back stock at the right price. But there's some ebb and flow th
at create some debate around the story.
And then of course, there's a med tech business, that's half of the company, tha
t a lot of us industrial folks don't know a lot about. We're still learning.
We've got Matt Gugino down here in the front row. He's the new Investor Relation
s person for Danaher. For those of you who don't know Matt, he worked for me, wi
th me for, what was it, 6, 7 years or something, 5? It felt like 10. Thanks for
taking him on. There was a little horsetrading that went on. There's a cash exch
ange between Danaher and ourselves as a player to be named later. If he doesn't
execute, they get to put him back to Barclays. What does it say about Danaher, t
hey got to hire a Barclays guy on that?
All right. Anyway, so I joke. I've got -- we've got Larry and Dan. I don't think
these guys need much of an introduction. So I'll stop there.
[:qa:]
Why don't we kick off with getting an update from you guys on what you're seeing
out there in the world. If you want to talk about the big dividend increase yes
terday, I think it was 300% or something outstanding. Surprised it wasn't on the
front page of the Journal today, big event. And I'm sure we're going to want to
talk about visibility in the M&A markets out there and what you guys are seeing
on an overall basis. So if you want to start off with maybe responding to my co
mments, this increased visibility out there in the world that companies in gener
al feel like they could dial in or forecast around the world. Let's start with t
hat, then we'll move on.
[:p id="265630" name="H. Culp" type="E" :]
Okay. Well, good morning, everyone. And, Scott, thank you for having us and havi
ng us lead off. Before we talk about the macro scene, you often hear us talk abo
ut the Danaher businesses, and we'll describe that very simply as who we are and
how we do what we do. When we talk about who we are, we're really talking about
our 5 core values. And our number one and most important core value is the best
team wins. It suggest a heavy emphasis on talent. And that's why Matt's on the
team. We think we're a better team with Matt despite all your wonderful mentorin
g and tutelage over the years.
We're certainly a better team without him. But I did hire 3 people to replace Ma
tt. So that's probably why.
Never been a better-looking piata, right? Matt, we're happy to have you on the te
am.
[indiscernible] on Wall Street.
I think as we look at the macro, we feel -- we actually feel pretty good about t
hings. Because we exited last year -- looking back on '13 is the year where, by
and large, with a headline core growth of 2.5%, given the slow growth macro scen
e we were operating within, we think we were winning. We were taking share in a
lot of places across the portfolio, and we were doing that profitably. And lots
of ways to look at that, but the 80 basis points of core operating margin expans
ion you saw through the course of the year, I think, was a nice way to bookend t
he top and the bottom line progress that we saw. And from an economic view, what
we were, I think, particularly encouraged by was the fact that as the year prog
ressed, the breadth of strength that we were seeing, both from a geographic and
portfolio perspective, expand. As you indicated in your remarks, Europe stabiliz
ed. It wasn't necessarily leading the way, but a stable Europe was something we
would -- we happily embrace. The U.S. clearly was picking up some modest momentu
m. And while the edge was off on some of the high-growth markets, they were stil
l very much leading the way for us. So all in all, it was a better macro scene i
n '13. It got better as we went through the year than we saw in the prior year.
But when we were together, really just about 2 months ago in New York, for our
year-end wrap-up and forward kickoff meeting, we talked about this year being on
e where we thought that pattern, by and large, would continue. And despite some
of what we were seeing in the fourth quarter, we were not taking a particularly
bullish view on 2014. I think there were folks in the audience when we talked ab
out this year being a year where we thought our core top line growth in the 2% t
o 4% range was probably a tad conservative, and little more just really a month
ago when we announced earnings where we clearly saw that breadth strengthen. Peo
ple were asking us, "Was there an inflection point?" And now, a month on, given
the headlines relative to the U.S. and what we've seen in terms of the polar vor
tex, some of the yanks relative to high-growth markets the last month or so, fol
ks are wondering whether we're rolling over. I think our view is there certainly
has been, I think, some effect from -- or correlated with those headlines. But
by and large, I think we feel good about 2014 just as good as we did back in Dec
ember, in large part because, again, I think our macro view was grounded. Our em
phasis from an operating perspective was just clearly geared toward making sure
that we continue to invest in the high-growth markets. On the more/margin, we're
smarter about that because they are not going to rise with the tide. But in all
likelihood, they're going to continue to lead the way. China -- the integrate [
ph] market basket represents about 1/4 of our overall sales. China's about 1/3 o
f that. So it's a well-balanced basket of exposure in China. Particularly, we se
e continued opportunity, given the types of businesses that we're in, to see Chi
na lead the way for us even, again, if the absolute number is a little softer. I
think from a U.S. perspective, we continue to feel good about our exposure in t
he U.S. Europe, we're not expecting a real inflection point at anytime this year
. But this slow steady level of activity that we see there is something that, ag
ain, I think our portfolio will allow us to take full advantage of. So all-in, S
cott, I don't think we have a particularly different view of 2014 than we did wh
en we first commented publicly in mid-December.
One of the things that you said last night, which I think caught -- and you said
this in last night dinner -- was nice enough to host a dinner for a few of us.
But one of the things you've said in the past is that you do envision there's pl
enty of runway with Danaher. It's a $20-billion revenue company that can be subs
tantially larger. I mean, what is your confidence that you can be this, that you
can double revenues in a 5-year period or 6-year period of time where -- I mean
, those are fairly astounding levels of growth when you think about the base tha
t you're starting with, the $20 billion. So a sense of your confidence and execu
tion and how you get there.
Sure, sure. Well, I think what we were talking about in the course of the dinner
conversation was what would it take for us to double the company. And I think t
he confidence that we shared with the group that was with us was really predicat
ed on 2 things. One being the tremendous financial capacity that we have, which
we -- in our cash flow now north of $3 billion a year and what is clearly, in th
e eyes of many, an under-levered balance sheet. And just the conviction of that
continues, coupled with a deep funnel of acquisition opportunities as we look ou
t the window and see businesses that we would love to have part -- as part of Da
naher. In some cases, those will be bolt-on acquisitions to our existing busines
ses. In other cases, those would be adjacencies, near-neighbor situations that v
ery much have been a part of the acquisition profile the last decade or so. And
in some cases, new legs on platforms where we may not be in a business today but
where the Danaher businesses, and we think, would be highly relevant and would
allow us to create value. So in many respects, I think the landscape suggests we
can do that. I think the conversation that was perhaps most interesting to the
folks that were with us was the fact that we don't aspire to be a $40 billion co
mpany revenue-wise, if that's going to cost us our culture, if that, in some way
, is going to allow us to be big but not strong. I know in time we talked about
Danaher Business System that can be a bit esoteric. We talked about culture, all
the more eyes can roll. But from an operating perspective, we really think that
's the difference at Danaher. And if we were to lose that because the portfolio
became too large and unwieldy, that would be a bad trade in our view. Now for so
me of us like Dan and myself, who have been with the company since we were doing
less than $1 billion, we've seen how we've been able to scale the company and m
aintain those stats, maintain that operating approach. And in many respects, it'
s simply, again, about our core values and our bias toward the businesses and th
e brands as opposed to having the businesses or a corporate. It's very much in r
everse at Danaher. But that doesn't mean, because we've traveled this distance f
rom less than $1 billion to $20 billion, that the path of $20 billion to $40 bil
lion is guaranteed. There's clearly now a critical mass at the platform level, S
cott. Clearly, we have regional critical mass as well that we want to lever. So
we're going to do that. We're going to be -- we're going to try to be smart and
nimble in doing so. But the last thing we want to do is create a larger Danaher
that becomes bureaucratic, becomes heavy at the corporate level because we know
that's going to get in the way of not only our culture but, ultimately, what we
do for customers and shareholders.
Well, one of the -- and I want to go to the audience response system after this.
But one of the questions we get about Danaher on a regular basis is that can yo
u be a company that's great on cost but also be a core growth company. And I thi
nk if you look at the history of this space overall, I think the answer has gene
rally been the core growth has been disappointing. And your peer group -- I mean
, it's a fairly tight band if you look at the data over the last 10 years, the a
verage core growth in this space is about 3%, so just in -- really in line with
GDP. There's not a lot of outliers, including you guys, really not an outlier ab
ove that. How do you respond to that criticism that you can't do it both, that y
ou can't be this cost-focused company that's taking out headcount and still driv
e the top line for multiple reasons, right?
Right, right. Well, I think when we look at core, right, it's important to try t
o discern how much the core performance is a function of portfolio and exposure
to various end markets at a point in time and how much of it is really a functio
n of operating prowess and capacity. Two weeks ago, Dan and I had our annual lea
dership conference where we brought together our top 175 leaders from around the
world, basically a 3-day event, closed doors, really talked about what's workin
g, what's not working, where we're headed, always a good session. It was a parti
cularly good session this year because we had Jim Collins join us. Jim's an old
friend. I think many of you know Jim. He authored Built to Last and Good to Grea
t. And one of the things that Jim talked to us about a decade ago, something tha
t is near and dear to our operating mindset and that he touched on again, which
was 2 weeks ago, is what he calls the Genius of the And. And this is something -
- this is where we really reject the idea that you can do one or the other. We b
elieve we're doing both. I would argue -- the case in point is if you go back, s
ay, to 2010, we have been very good on cost. We've increased our gross margins 2
30 basis points. We've held SG&A basically flat. So we've had really nice levera
ge from the cost buckets that don't necessarily drive the top line. We've taken
our sales and marketing up 70 basis points; R&D, up 40. So in that mix, we've be
en able to lift our operating margin expansion and put those growth investments
in the situations where even in a low-growth macro scene, we've been taking mark
et share. It doesn't mean that we're -- we've been undefeated across the portfol
io. I don't want to suggest that. But where we've been making those bets, I thin
k our teams have identified good opportunities and have executed well upon them.
So we understand that as you look at your universe over a period of time, the a
bsolutes matter. But on a relative basis, where we compete with specific competi
tion, we think we're winning because we're making those bets while delivering go
od margin and very good cash performance.
So a similar question to that is the whole concept of R&D spend and what that dr
ives. Does R&D spend drive -- does it protect your margins? Does it drive core g
rowth? And I think the experience that we've seen in the space is that those who
spend the most on R&D, which Danaher is included in that, have substantially hi
gher margins but don't necessarily have higher-than-average growth. And how do y
ou work out on an R&D culture that can do both?
Well, I think part of an R&D -- to me, part of it starts with not necessarily ru
nning the business strictly on the back of ratios, right? We don't target a perc
entage of sales that we want R&D to come in at, at budget or at year end. We're
really trying to find the best opportunities that our businesses see out there a
nd make sure they get funded. And to the degree we can't, they get overfunded be
cause R&D is naturally risky. It's not wildly different with the way we think ab
out M&A, right? We want to search out opportunity and then fund them appropriate
ly. But it's not just a function of R&D, right? The best product does not necess
arily sell itself. We need to make sure that we're coupling those technology inv
estments with commercial investments so that we're out there on a global basis,
particularly today in the digital world, effectively bringing those solutions to
customers at times and places and in ways that are going to have them buy those
products or those services in volume. It may sound simplistic, but that's reall
y kind of the operating mindset that we bring to it, Scott.
All right. Let's go to the audience response question. We did this -- for those
of you who were here last year, we had a lot of fun with these. We're trying to
create a time series. Let's go to question one, please, and it says do you curre
ntly own a stock. And there's a handheld device. It's completely anonymous. We h
ave no idea who's filling out what. So please, the more the participation, the b
etter. And then we will share the data at 5:00 today. Do you currently own a sto
ck? Let's respond now, please.
Do we get to vote, Scott?
No.
[Voting]
Okay, 77 -- okay. 43% yes, and 53% no. I'm actually surprised it's not a little
higher.
The no?
No. The -- just given the size of your company, I would think that there'd be a
little bit higher bias to that, just given the amount of people here. So that's
good. Let's do the second one just to see if we learned something from that. Wha
t is your general bias toward the stock right now, positive, negative or neutral
? Let's vote.
[Voting]
Okay, 58% positive. So 9% negative, you guys been pissing people off there or wh
at?
One out of 10.
So all right. So let's go to #3 then and see what it's teaching us. In your opin
ion, true cycle EPS growth for Danaher will be above peers, in line with peers,
below peers? Let's vote.
[Voting]
Okay. Well, that's interesting. All right. Well, the bias is clearly positive as
you would expect. But we'll have to compare that to next -- to last year and se
e the difference. So let's dig in to the next important topic, and that's cash r
einvestment. I mean, you guys generate a lot of cash. I think the average over t
he last 10 years has been somewhere around 125% of net income, maybe it's a litt
le higher. Fantastic cash generation. You've always been willing to utilize your
balance sheet and take advantage of both the cash generation and the credit mar
kets. We've been in the lull. I mean, you put some money to work, clearly, but w
e've been in a lull since -- back when you just announced the dividend increase
yesterday. I woke up and checked my BlackBerry this morning. There was a half do
zen people that said, "What is this telling us? Is there messaging here? Is ther
e -- does this tell us that there's no opportunities?" And I think your dividend
increase is still a -- I think you said 8% of your net free cash flow. So I'm n
ot sure that's much messaging at all. But give us an update of how your views ma
y be adapting to this new world of high M&A multiples as it relates to share buy
back, opportunistically dividend. And we're not going to put a gun to your head
on timing of transactions, because we don't want you to go out and do something
silly, but give us a sense of your opportunity set and the realistic ability to
close things.
[:p id="265652" name="Daniel Comas" type="E" :]
Just -- maybe a little bit on the dividend. When we started talking to the board
about Beckman, and we've been talking for number of years but it got more serio
us late in 2010, at that point, we were generating a little less than $2 billion
a year free cash flow. And as we got due diligence on Beckman and went to the b
oard, we sort of had a point of view that as Beckman really worked out well, tha
t in consequence with the -- our existing businesses, we really could see, in a
very quick time period, a big step-up in our free cash flow. And have you seen t
he free cash flow set in 2010, it's up $2 billion and, just a couple of years la
ter, now north of $3 billion. And one of the discussions we had with the board i
s would that create some potential avenues for capital allocation under than M&A
without really limiting our M&A ability. And given the increase in the cash flo
w, you've seen for the first time a relatively large buyback, at least by our st
andards, in 2012 where we spent about $650 million buying back our stock back in
low 50s. And [indiscernible], we wish we bought a little more. But again, that
was a little bit out of character from what we've done in the past. You've seen
an addition to that, yesterday, the addition of a dividend. So not only there's
any change in the M&A bias, I just think given the breath of our free cash flow,
there's some other opportunities that provide value for shareholders.
That makes sense. So that's perfect timing to go on to question 4 then on the AR
S. In your opinion, what should Danaher do with excess cash? You can see bolt-on
M&A, larger M&A, share repurchases, dividends, debt paydown and turn on. I'm no
t sure you have much debt to pay down, but I don't want to skew the results here
. So let's vote.
[Voting]
Okay. Interesting, right?
Almost looks like you asked our board to vote. I think that where the board woul
d come at.
That's interesting. So -- and the other question we get when we go out and meet
with investors is what is the logic of a half medical, half industrial company,
like what -- how does shareholders benefit from that. And how do you guys think
about that? Is it modulating the cyclicality? Is it having that more stable medi
cal business that generates cash flow through the cycle more predictably? I mean
, what is the benefit to shareholders?
Right. Well, I don't think -- first of all, we look at it as a half industrial,
half med tech [indiscernible], right? And maybe we're too close to it because we
're living it every day, but I think we very much think of ourselves as a scienc
e and technology company. If you go back to our roots 25 years ago, we were larg
ely a U.S.-oriented, OEM-component company that fortunately got in early with th
e experts at Toyota and became one of the first companies to really implement th
e Toyota Production System. I think over time, that developed a skill set, which
we now refer to as the Danaher Business System. But all the while, we're also t
rying to improve the quality of the portfolio, the quality of the end markets th
at we face and the underlying economics. For 22 years, we've been fortunate to h
ave our free cash exceed our net income. We're pretty proud of that fact. And we
've been able to put that capital back to the business. We didn't aspire just to
be a component company. We really wanted to make sure that we were in attractiv
e end markets where DBS was relevant to get in by way of acquisition, acquisitio
ns that weren't only smart strategically but that were well priced and with DBS
could deliver value for shareholders. We first got into the analytical instrumen
tation world in water quality. Water's is going to be on opportunity, frankly, f
or the rest of our lives, well within our careers. That led us into the test and
measurement space. And those 2 businesses, clearly, are a large part of what we
've done over the last 15 years. The skills that we developed in those spaces we
thought were quite portable into what you call med tech, both in terms of the s
pecialty medical business that we call Dental today. It shares lots of character
istics in terms of its fragmentation with our water business. Life Science resea
rch is -- has a whole host of different overlaps in terms of what it takes to pl
ay and win with our Test & Measurement and our water quality business as well. A
nd in Diagnostics, we love that razor-razorblades model. That represents 40%. Co
nsumables represents 40% of our revenue today and obviously higher in Diagnostic
s. So that repeatable revenue stream and the opportunity to take those high gros
s margin and deliver strong returns has also, I think, worked very well for our
shareholders. So we understand the view from a distance as to the 2 halves, but
we really see a common arc over the portfolio in terms of instrumentation, consu
mables related to services and in relevant software, which really defines Danahe
r. And we think we've been able to get to these businesses in well-timed, well-p
riced ways. DBS has been relevant across the entire portfolio. And we think, in
turn, whether you have the cash or the stock price over time, that's worth for s
hareholders. As we go forward, I think we're mindful of some of those perception
s but certainly would aspire. When we think of the $40 billion revenue, it's sti
ll very much be a science and technology company facing the best end markets pos
sible, all the while making sure that when we get into a space, large or small,
the DBS is relevant. Because again, we don't want to be big without being strong
, and DBS is the -- at the core of our strength.
Makes sense. So let's open it up to the audience, this as a full participatory Q
&A session. Any questions? While you're thinking of your -- we've got a question
up front, please. While we're waiting for the mics to queue up, let's go to que
stion 5 on the ARS, and then we'll take your question. Hold on one sec. So let's
do question 5 real quick. Hold on one sec, Will. Okay, in your opinion, on what
multiple of 2014 earnings should Danaher trade? This is 2014. Okay, let's vote.
[Voting]
All right. We'll have to compare that to last year. I think it's fairly comparab
le if that's -- if memory serve me right. All right. Go ahead, Will.
[:p id="D00" name="Unknown Attendee" type="D" :]
One analyst wrote that the increase the dividend might suggest that that's in pl
ace for some of the smaller bolt-ons that you otherwise would be doing. That rel
ates to our prior question here and what are you -- what's your response to that
?
I'm sorry. will the dividends going to crowd out the small?
Yes. The increase in the dividend decision to perhaps do fewer of the smaller bo
lt-ons.
Right.
That's in place of some of the smaller bolt-on. Now that's -- I know it's writte
n...
I didn't see that. I would certainly respect that perspective, though I would di
sagree with you. We've -- you've heard us talk publicly about $8 billion of capa
city. A number -- if you have -- run back the envelope numbers, that would sugge
st a larger number. I can't imagine $280 million cash is going to put a dent in
our aspirations or activity this year. So I think as Dan highlighted, an importa
nt part of our overall capital allocation strategy, but I wouldn't read too much
into it. And I particularly would not read anything into it vis--vis the state o
f the acquisition funnel and our aspirations for this year.
And if you look at last year, we spent $1 billion on bolt-ons, which is remarkab
ly consistent the last 5 years. What didn't happen in 2013 was that larger Capst
one deal at $2 billion, $3 billion or Beckman-sized type opportunity.
And as you know, Will, we have been always well served by being patient, and I t
hink we've seen the cycle through a couple of times now. Frankly, I think we're
in a good position not only because of that capacity but because of recognition
that times do change, usually the last 60 days, right? There's some sentiment. A
nd taking the long view should continue to serve us well.
Next question? Right back here, please. I think you can also use that handheld d
evice if you want to use that. Test the sound quality though.
You've talked about acquiring, in the software space, higher-margin businesses,
good free cash flow. Can you acquire there accretively as you have in the past,
given where multiples are intact versus traditional industrial businesses? And i
s DBS as relevant in that space as it has been in your traditional businesses?
Forgive me, there's a bit good echo up here. I think I got most of that question
. In terms of our ability to buy software companies, I think we have done that i
n the past and certainly would have an appetite for doing so in the future. Clea
rly, there are places today at -- in the markets that we have an interest in whe
re software-centric companies are well priced. We've seen that in different busi
nesses, even in traditional hardware businesses over time where, frankly, the pu
blic markets decides that we couldn't take them out at market and generate retur
ns that we think would be acceptable level on if we were to put a take -- a prem
ium on that. But that's why we like our chances because we have such a broad arr
ay of opportunities to assess through the course of the cycle. In terms of the s
econd part of your question, the relevance of Danaher Business System vis--vis so
ftware, I assume you're talking specifically about software development. These a
re really not factory per se. There's a fair bit of what we do today in our soft
ware-oriented businesses with the Danaher Business System around what we call th
e software development and other related tools that really help our developers w
rite proper code as quickly as they possibly can so that we're shortening, if yo
u will, product development life cycles and improving quality much like we do in
manufacturing. So there are some core principles that our manufacturing and our
software developers share in addition to some very targeted software developmen
t tools that are part of the DBS toolbox today. And again, if you look at some o
f the businesses, particularly in our Test & Measurement space, our Tektronix Co
mmunications business being one example, we've had a very good run with that bus
iness, in part because of their exposure to the mobile carriers, but in no small
part because of [indiscernible] of DBS in their factory, so to speak.
Good question. Next? Mike? Want to give it a try? Does not work...
[indiscernible].
So you mentioned growth markets. I was wondering if you could just give us an up
date on what you're seeing in China right now, both in terms of your shorter-cyc
le businesses, as well as health care.
Sure. We've -- we ended the fourth quarter we were up 9%, 10% in China in the fo
urth quarter, which was a little bit higher than the third, but in line with the
-- what we saw in the first half. Through the end of -- 2012, let's kind of sta
rt there, we had seen continued strength across the health care businesses, but
most of the industrial businesses remain pretty weak. As we got into '13, the he
alth care businesses remained pretty robust, maybe not at the 20% cliff, probabl
y more in kind of a mid-teen type of cliff. Part of [indiscernible] is that the
function, that base has -- got really large for us in China. What we did see in
2013 was some of our industrial businesses, particularly our water business and
our PID business, a little sluggish in '12, begin to pick up, and they actually
strengthened through the year. Some of our other industrial businesses, Motion,
Test & Measurement remained pretty weak. And while the numbers are a little bett
er as we got into the second half of '13, I think you could argue that was much
a comp-ish, a little bit easier comp as opposed to real sequential strengthening
. So we're still looking for a turn there. So about half of the industrial busin
esses got better as we got through '13 and the half, I think, we're still waitin
g on.
I think you have said you changed your strategy in China at all. I mean, most of
the companies that we cover went into China, call it, 15 years ago and they rea
lly, largely failed and had to go back in with a different strategy of -- but my
sense is from visiting guys over there for many years is that a lot of your pro
ducts fly off the radar -- or a little off the radar screen of the government ma
ndate and focuses and -- but is this still the case? I mean, is it still the cas
e that most of your stuff is...
I don't think we've had to change our strategy, right? Our strategy has certainl
y evolved in China. I think like a lot of western companies, we went there, firs
t and foremost, with western products branded with western names, largely high-p
riced point set. Unfortunately, because of some of those characteristics that yo
u -- structural characteristics that you've highlighted, we were able to go in w
ithout a lot of interference and, frankly, without a lot of local competition, b
y and large, the competition that we've seen in our businesses, again, in part b
ecause of that science and technology bias that we've had has largely been weste
rn or Japanese. I think the evolution in our strategy is to make sure that we're
not simply sitting there on coast, that we're going west. And that continues to
be an opportunity in terms of penetration even if things do slow down. In addit
ion, as we've localized more of our R&D, we're coming down that price point cont
inuum because we do have more local competition in most of our businesses today
than we did a decade ago. Nobody necessarily stands out, which is a good place t
o be, but we don't want to wait, right? Because that mid-price point segment in
many of our markets, and I'm sure you see this elsewhere, is increasingly releva
nt. It's another penetration dimension we have available to us. And long term, s
trategically, we'd rather engage local competition there than wait to wage that
battle at the high price point. So even if China slows, we just think given wher
e we play in terms of the environment and the issue they have in that regard, wh
at's happening from a networking perspective, food safety is something we plug i
nto quite well in our Product Identification business, there are just lots of is
sues and opportunities in China from a portfolio view, in addition to the wester
n expansion in the mid-priced point penetration, that gives us, if you will, som
e cushion or some upside.
All right. Next question in the audience? Let's go to the last ARS question whil
e we queue up any additional questions. Number 6, what do you see as the most si
gnificant investment issue for Danaher, core growth, margin, capital deployment,
execution/strategy? Let's vote.
[Voting]
Great. Wow, that's a change versus a year ago. Okay. I don't want to read the nu
mbers aloud because my competitors are listening to these calls, and they like t
o -- they have nothing better to do I guess with their franchises than write up
our meetings.
Really?
Yes. It's pretty pathetic, right?
I feel like [indiscernible] up here now.
Well, my question to them, the competitors that feel like they need to write up
our notes, is why is our market share so low if they have such good content? The
y're stealing our stuff. Why is their market share still so low? You think they'
d be gaining share and they're actually losing share. So maybe they get the memo
that stealing other people's content doesn't help you gain market share. What y
ou think about that, huh?
Well, we have a strong non-piracy policy at Danaher. We encourage our developers
to adhere to IP restrictions as well. That's part of our standards of conduct.
I would consider it a failure of model if you steal other people's stuff and you
still lose market share.
For those of you who don't own Danaher.
We have time for another 1 or 2 questions. So let's...
Please.
Bail me out of this one. Will? We'll figure out this whole mic thing eventually.
You want to give it a try?
Just following up on China. It was -- while we're here, it was my understanding
that SATA brought you tremendous talent there and it worked very well. And it be
came a launching pad for some of your other businesses...
Yes.
In China. And you now made a separation. SATA has gone as a tool group. So can y
ou talk about -- was any part of that -- was there any compromising there, where
you had to give up some of that edge that you might've had in China, some of th
e talent? Or had you already separated them so it's -- so that you were fully pr
epared for that?
Right, right. Well, referring to is SATA, which was our hand tool operation in C
hina, was an important part of our hand tool business that we put into a joint v
enture with Cooper years ago and then the 2 of us subsequently sold. How did tha
t transition, given how important the SATA team was to our start in China, both
from a manufacturing perspective and, frankly, just operating at large to our ov
erall China strategy? There's no question that the lessons we learned at SATA an
d, frankly, the associates that grew up there and then went to other businesses
continues to -- they continue to play a very large role for us. Will, I think it
-- I think we knew that with that transition taking place as it did in 2 steps
over a period of years, that we needed to be prepared for that. And that was no
small part of the planning. I think we were able to keep SATA independent and st
rong. But given the number of people that they had exported, the lessons that ha
d been learned, we had a facility across the street there in Xialu for Fluke and
for Hach, other people went elsewhere around the country, I think we were able
to fully absorb those lessons in the nearly 20 facilities that we have in China,
such that when that transition was made, we said goodbye to our friends, they'r
e still our friends, just no longer colleagues. And our businesses there have co
ntinued to ramp very well. And today, as you may know, we have Jon Clark, one of
our senior executives, formerly the group executive in charge of our water qual
ity business, on the ground there in Shanghai as President of Danaher China. As
we evolve again, rather than change, the corporate way that we have is supportin
g the businesses on the ground there. You'll recall also that while SATA really
helped us from a manufacturing perspective, the Fluke acquisition over 15 years
ago now really brought a bookend set of capabilities on -- in the commercial rea
lm. And that business continues to play a visible internal leadership role and m
aking sure we know what good looks like in terms of brand building, distribution
, western penetration, mid price point, access and the like, not only for Fluke
but for the rest of Danaher portfolio.
Okay. I think that's a great segue to wrap up. Thank you, Larry and Dan. Thank y
ou, everybody, for your questions and attendance.
Thank you, Scott.
You bet.
Thank you.

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