Danaher 2009 Annual Report Download - page 59

Table of Contents
future operating margins, discount rates and terminal values. There are inherent uncertainties related to these assumptions and management’s judgment in
applying them to the analysis of goodwill impairment. While the Company believes it has made reasonable estimates and assumptions to calculate the fair
value of its reporting units, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions,
goodwill and other intangible assets may be overstated and a charge would need to be taken against net earnings.
As of December 31, 2009, the Company had 27 reporting units for goodwill impairment testing. The carrying value of the goodwill included in the
Company’s individual reporting units ranges from approximately $5 million to approximately $2 billion. The Company’s annual goodwill impairment
analysis in 2009 indicated that in all instances, the fair value of the Company’s reporting units exceeded their carrying values and consequently did not result
in an impairment charge. The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting
unit) for each of the Company’s reporting units as of the first day of the Company’s fiscal fourth quarter, the annual testing date, ranged from approximately
3% to approximately 529%.
In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, the Company applied a hypothetical 10% decrease to the
fair values of each reporting unit and compared those values to the reporting unit carrying values. Based on this sensitivity analysis, the Company identified
three reporting units, with an aggregate $2.6 billion carrying value of goodwill, that have a reporting unit carrying value that would exceed fair value if the fair
value of those reporting units decreased 10%. On an aggregate basis, the excess of the estimated fair value over carrying value (expressed as a percentage of
carrying value for the respective reporting unit) for these three reporting units is 6.5%. The application of the hypothetical 10% decrease in fair value for these
three reporting units would result in an aggregate shortfall in fair value of 3.8% as compared to the aggregate carrying value of these three 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 comparing the carrying amount of the assets to the future net cash
flows expected to be generated by the assets. If such assets were impaired, the Company would be required to recognize a charge for the amount by which the
carrying amount of the assets exceeds their fair value. In determining the fair value of long-lived assets, the Company makes judgments relating to the expected
useful lives of long-lived assets and its ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets. Factors that impact
these judgments include 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. If actual fair value is less than the Company’s estimates, long-lived assets may be
overstated on the balance sheet and the Company would need to take a charge against net earnings.
Contingent Liabilities. As discussed above under “—Legal Proceedings”, the Company is, from time to time, subject to a variety of litigation and similar
contingent liabilities incidental to its business. The Company recognizes a liability for any contingency that is probable of occurrence and reasonably
estimable. These assessments require judgments concerning matters such as the anticipated outcome of negotiations, the number and cost of pending and
future claims, and the impact of evidentiary requirements. In addition, because most contingencies are resolved over long periods of time, liability estimates
may change in the future due to new developments or changes in the Company’s settlement strategy. If the reserves established by the Company with respect to
these contingent liabilities are inadequate, the Company would be required to incur an expense equal to the amount of the loss incurred in excess of the
reserves, which would adversely affect the Company’s net earnings.
Revenue Recognition: The Company derives revenues primarily from the sale of products and services. For revenue related to a product or service to qualify
for recognition, there must be persuasive evidence of a sale, delivery must have occurred or the services must have been rendered, the price to the customer
must be fixed and determinable and collectibility of the balance must be reasonably assured. The Company’s standard terms of sale are FOB Shipping Point
and, as such, the Company principally records revenue for product sales upon shipment. If any significant obligations to the customer with respect to such
sale remain to be fulfilled following shipment, typically involving obligations relating to installation and acceptance by the buyer, revenue recognition is
deferred until such obligations have been fulfilled. Product returns consist of estimated returns for products sold and are recorded as a reduction in reported
revenues at the time of sale. Customer allowances and rebates, consisting primarily of volume discounts and
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Source: DANAHER CORP /DE/, 10-K, February 24, 2010 Powered by Morningstar® Document Research℠
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