Danaher 2011 Annual Report Download - page 61

Table of Contents
Stock-Based Compensation: The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for all
equity awards granted, including stock options, restricted stock units (“RSUs”) and restricted shares, based on the fair value of the award as of the grant
date. For a discussion of the Company’s stock-based compensation accounting practices, refer Note 17 to the Company’s Consolidated Financial Statements.
Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of subjective assumptions,
including the expected life of the awards and stock price volatility. The assumptions used in calculating the fair value of stock-based payment awards
represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors
change and the Company uses different assumptions, the Company’s equity-based compensation expense could be materially different in the future. In
addition, the Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If the Company’s actual
forfeiture rate during a reporting period is materially different than its estimate, the Company’s earnings may be significantly impacted as the Company
records the effect of actual experience in the period it occurs.
Pension and Other Postretirement Benefits: Certain of the Company’s employees and retired employees are covered by defined benefit pension plans (“pension
plans”) and certain eligible retirees are entitled to health care and life insurance benefits under postretirement benefit plans (“postretirement plans”). The
Company measures its pension and post retirement plans’ assets and obligations as of the end of each year to determine the funded status of each plan. The
Company recognizes an asset for a plan’s overfunded status or a liability for a plan’s underfunded status in its balance sheet. Changes in the funded status of
the plans are recognized in the year in which the changes occur and are reported in comprehensive income. Accounting standards require that the amounts the
Company records, including the expense or income, associated with the pension and postretirement plans be computed using actuarial valuations.
Calculations of the amount of pension and other postretirement benefit costs and obligations depend on the assumptions used in the actuarial valuations,
including assumptions regarding discount rates, expected return on plan assets, rates of salary increases, health care cost trend rates, mortality rates, and
other factors. While the Company believes that the assumptions used in calculating its pension and other postretirement benefits costs and obligations are
appropriate, changes in the assumptions (as a result of differences in actual experience, changes in key economic indicators or other factors) may affect the
Company’s financial position or results of operations. A 50 basis point reduction in the discount rates used for the plans would have increased the U.S. net
obligation by $125 million ($78 million on an after tax basis) and the non-U.S. net obligation by $77 million ($58 million on an after tax basis) from the
amounts recorded in the financial statements at December 31, 2011.
For 2011, the expected long-term rate of return assumption applicable to assets held in the U.S. plan has been estimated at 8%. This expected rate of return
reflects the asset allocation of the plan and the expected long-term returns on equity and debt investments included in plan assets. The U.S. plan targets to
invest between 60% and 70% of its assets in equity portfolios which are invested in funds that are expected to mirror broad market returns for equity securities
or in assets with characteristics similar to equity investments. The balance of the asset portfolio is generally invested in corporate bonds and bond index
funds. If the expected long-term rate of return on plan assets for 2011 was reduced by 50 basis points, pension expense for the U.S. and non-U.S. plans for
2011 would have increased $8 million (or $5 million on an after-tax basis). The Company intends to use an expected long-term rate of return assumption of
7.5% for 2012 for its U.S. plan. The Company’s non-U.S. plan assets consist of various insurance contracts, equity and debt securities as determined by the
administrator of each plan. The estimated long-term rate of return for the non-U.S. plans was determined on a plan by plan basis based on the nature of the
plan assets and ranged from 1.25% to 7.90%.
For a discussion of the Company’s 2011 and anticipated 2012 defined benefit pension plan contributions, please see “Liquidity and Capital Resources
—Cash and Cash Requirements”.
Income Taxes: The Company’s income tax expense represents the current tax liability for the year and the tax benefit or expense for the net change in deferred
tax liabilities and assets during the year. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. Deferred tax assets generally represent items
that can be used as a tax deduction or credit in the Company’s tax return in future years for which the tax benefit has already been reflected on the Company’s
Consolidated Statement of Earnings. The Company establishes valuation allowances for its deferred tax assets if it is more likely than not that some or all of
the deferred tax asset will not be realized. Judgment is required in estimating valuation allowances. The determination of the amount of valuation allowance to
be provided on recorded deferred tax assets involves estimates regarding: (1) the timing and amount of the reversal of taxable temporary differences,
(2) expected future taxable income, and (3) the
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Source: DANAHER CORP /DE/, 10-K, February 24, 2012 Powered by Morningstar® Document Research℠
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