Danaher 2011 Annual Report Download - page 47

Table of Contents
as of December 31, 2011. As these shorter duration obligations mature, the Company anticipates issuing additional short-term commercial paper obligations to
refinance all or part of these borrowings. In 2011, a 150% increase in average market interest rates on the Company’s commercial paper borrowings would
have increased the Company’s interest expense by approximately $2 million. A 150% hypothetical fluctuation is used as the Company’s actual commercial
paper interest rates fluctuated near that amount during 2011. In 2011, a 65% increase in average market interest rates on the Company’s $300 million floating
rate senior notes due 2013 would have increased the Company’s interest expense by approximately $1 million. A 65% hypothetical fluctuation is used as the
Company’s actual coupon interest rates fluctuated near that amount during 2011.
Currency Exchange Rate Risk
The Company faces exchange rate risk from its investments in subsidiaries owned and operated in foreign countries. The Eurobond Notes described below
provide a natural hedge to a portion of the Company’s European net asset position. The effect of a change in currency exchange rates on the Company’s net
investment in international subsidiaries, net of the translation effect of the Company’s Eurobond Notes, is reflected in the accumulated other comprehensive
income component of stockholders’ equity. A 10% depreciation in major currencies, relative to the U.S. dollar at December 31, 2011 (net of the translation
effect of the Company’s Eurobond Notes) would result in a reduction of stockholders’ equity of approximately $584 million.
The Company also faces exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions
between affiliates. Although the Company has a U.S. dollar functional currency for reporting purposes, it has manufacturing sites throughout the world and a
substantial portion of its costs are incurred, and sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside
of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, the Company is exposed to
movements in the exchange rates of various currencies against the U.S. dollar. 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.
Currency exchange rates increased reported 2011 sales by 2.5% on a year-over-year basis as the U.S. dollar was, on average, slightly weaker against other
major currencies during 2011 as compared to exchange rate levels during 2010. The impact on reported sales due to the strengthening of the U.S. dollar in the
fourth quarter 2011 was more than offset by the impact of the U.S. dollar’s weakness against other major currencies during the first three quarters of 2011.
As a result of the recent strengthening of the U.S. dollar against other major currencies, if the exchange rates in effect as of December 31, 2011 prevail
throughout 2012, currency exchange rates would negatively impact 2012 reported sales by approximately 2.0% relative to the Company’s performance in
2011. Additional strengthening of the U.S. dollar against other major currencies would have a further negative impact on the Company’s reported sales and
results of operations. Any weakening of the U.S. dollar against other major currencies would positively impact the Company’s sales and results of operations
on an overall basis.
The Company has generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Both
positive and negative movements in currency exchange rates against the U.S. dollar will therefore continue to affect the reported amount of sales, profit, and
assets and liabilities in the Company’s Consolidated Financial Statements.
In connection with the acquisition of Beckman Coulter, the Company acquired an existing currency swap agreement. The agreement requires the Company to
purchase approximately 184 million Japanese Yen (JPY/¥) at a rate of $1 / ¥102.25 on a monthly basis through June 1, 2018. As of December 31, 2011, the
aggregate Japanese Yen purchase commitment was approximately ¥14.1 billion (approximately $182 million based on exchange rates as of December 31,
2011). The currency swap does not qualify for hedge accounting, and as a result changes in the fair value of the currency swap are reflected in selling, general
and administrative expenses in the Consolidated Statements of Earnings. During the year ended December 31, 2011 the Company recorded a pre-tax charge of
approximately $8 million related to changes in the fair value of this currency swap.
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Source: DANAHER CORP /DE/, 10-K, February 24, 2012 Powered by Morningstar® Document Research℠
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