Danaher 2011 Annual Report Download - page 60

Table of Contents
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, 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, 2011, the Company had 28 reporting units for goodwill impairment testing. The carrying value of the goodwill included in each
individual reporting unit ranges from approximately $7 million to approximately $3.7 billion. The Company’s annual goodwill impairment analysis in 2011
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 annual testing date ranged from approximately 11% to approximately 560%. 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 hypothetical 10% decrease, 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 ranged from approximately zero to
approximately 494%. Reporting units resulting from recent acquisitions generally present the highest risk of impairment. Management believes the impairment
risk associated with these reporting units decreases as these businesses are integrated into the Company and better positioned for potential future earnings
growth.
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 (or the business operations of previously owned entities). The Company recognizes a liability for any
contingency that is probable of occurrence and reasonably estimable. These assessments require judgments concerning matters such as litigation developments
and outcomes, the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims. In addition, because most
contingencies are resolved over long periods of time, liabilities may change in the future due to various factors, including those discussed above under “
—Legal Proceedings”. 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 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 collectability of the balance must be reasonably assured. Refer to Note 1 to the Company’s Consolidated Financial Statements
for a description of the Company’s revenue recognition policies. Although most of the Company’s sales agreements contain standard terms and conditions,
certain agreements contain multiple elements or non-standard terms and conditions. As a result, judgment is sometimes required to determine the appropriate
accounting, including whether the deliverables specified in these agreements should be treated as separate units of accounting for sales recognition purposes,
and, if so, how the sales price should be allocated among the elements and when to recognize sales for each element. For fiscal 2011 and future periods,
revenues for contractual arrangements consisting of multiple elements (i.e. deliverables) are recognized for the separate elements when the product or services
that are part of the multiple element arrangement have value on a stand-alone basis and, in arrangements that include a general right of refund relative to the
delivered element, performance of the undelivered element is considered probable and substantially in the Company’s control. The Company allocates revenue
to each element in the contractual arrangement based on a selling price hierarchy that, in some instances, may require the Company to estimate the selling price
of certain deliverables that are not sold on a stand-alone basis or where third party evidence of pricing is not observable. The Company’s estimate of selling
price impacts the amount and timing of revenue recognized in multiple element arrangements. For transactions entered into prior to fiscal year 2011, revenue
for arrangements with multiple elements is recognized for the separate elements when the product or services that are part of the multiple element arrangement
have value on a stand-alone basis, fair value of the separate elements exists (or in the case of software related products, vendor specific objective evidence of
fair value) and, in arrangements that include a general right of refund relative to the delivered element, performance of the undelivered element is considered
probable and substantially in the Company’s control. A portion of the Company’s revenues relate to lease payment arrangements, which require the Company
to evaluate whether to account for the arrangement as an operating or sales type lease. Certain of the Company’s lease contracts are customized for larger
customers and often result in complex terms and conditions that typically require significant judgment in applying the lease accounting criteria.
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Source: DANAHER CORP /DE/, 10-K, February 24, 2012 Powered by Morningstar® Document Research℠
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