Danaher Corporation (DHR) Q4 2012 Earnings Report, Transcript and Summary

Hello, everyone. My name is Charlonne, and I will be your conference facilitator. Good day, and welcome to the Danaher Corporation Fourth Quarter 2012 Earnings Results. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Matt McGrew, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and thanks for joining us. On the call today are Larry Culp, our President and Chief Executive Officer; and Dan Comas, our Executive Vice President and Chief Financial Officer. I'd like to point out that our earnings release, a slide presentation supplementing today's call and the reconciling and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call, which we refer to as the supplemental materials, are all available in the Investors section of our website, www.danaher.com, under the heading Financial Information and will remain available following the call. As our year-end Form 10-K has not yet been filed, we've included, as part of the earnings release, the fourth quarter and full year income statements, year-end balance sheet and year-end cash flow statement. In addition, we have included data in the release reflecting our business segments results to facilitate your analysis. The audio portion of this call will be archived on the Investors section of our website later today under the heading Investor Events and will remain archived until our next quarterly call. A replay of this call will also be available until February 5, 2013. The replay is (888) 203-1112 in the U.S. and (719) 457-0820 internationally, and the confirmation code is 2149164. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Please refer to the supplemental materials in our annual report on Form 10-K when it is filed for additional factors that impacted year-over-year performance. All references in these remarks and the accompanying presentation to earnings revenues and other company-specific financial metrics relate only to the continuing operation of Danaher's business unless otherwise noted. I'd also like to note that we'll be making some statements during the call that are forward-looking statements within the meaning of the Federal Securities Laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Possible that actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements whether a result of new information, future events and developments or otherwise. With that, I'll turn the call over to Larry.

Matt, thanks. Good morning, everyone. We were pleased by the solid finish to 2012, which was broad based across most of our businesses. Core revenues grew 3.5% in the fourth quarter, with incremental strength most pronounced in Life Sciences & Diagnostics, Product Identification and Dental. Additionally, the team's application of the Danaher business system led to good earnings growth, core margin expansion and outstanding cash flow performance, including a record $3 billion of free cash flow generation in the year. From a geographic perspective, high-growth markets grew low double digits with particular strength in Latin America and the Middle East. China delivered high single-digit growth in the fourth quarter, again led by Life Sciences & Diagnostics and Dental. In the U.S., year-end demand helped drive low single-digit growth in the quarter. Western Europe was modestly negative. Of note, revenues from the high-growth markets grew to more than 25% of our total revenues in 2012. While approximately 1/3 of this revenue is generated in China, we have also built an increasingly large presence in Latin America, with more than $750 million of annual sales; in the Middle East and Africa, with about $500 million in sales. We are proud that we have been able to replicate our success in China in other key growth markets. High-growth market revenues now surpass those from Western Europe and are a strong base for future growth and serve as a hedge against the uncertain economic outlook in Europe. In 2012, we strengthened the Danaher portfolio, spending $1.8 billion on 14 acquisitions, most notably X-Rite and IRIS. Over the next 2 years, we have ample balance sheet capacity to deploy on acquisitions with a continued focus on our strategic growth platforms, which now account for more than 90% of total revenues. So with that as a…

Thanks, Larry. Charlonne, that's the conclusion of the formal comments. We're ready for questions.

[Operator Instructions] We'll have our first question from Scott Davis with Barclays.

Guys, there's a little bit of a disconnect when you think back to your Investor Day in mid-December, you were pretty cautious overall even including Life Sciences, and you came in with a pretty strong volume. And now you're getting a little bit more cautious for 1Q as far as core growth they're giving you [ph]. Was there a pull-forward at all in that last couple of weeks of December in Life Sciences or anything and related to book-to-bill that would give you some concern about the start to the first quarter?

Scott, I don't think in terms of the big picture there's really any change 6 weeks on here from what we said in New York in mid-December. Clearly, we finished more strongly than we had anticipated even then when we were together. But I don't think we're at a point here where we would extrapolate too much too soon from that strong finish. Clearly, we saw the new products that we launched midyear in Life Sciences & Diagnostics, particularly in Life Sciences at AB SCIEX and Leica Micro finish quite strongly, both in terms of the underlying order book but also the product we were getting out the door. I think we would also acknowledge that in Dental, another business that kind of led the way here for us in the fourth quarter, they probably saw a bit of a surge in demand at the end of the year, in part, just because of all the uncertainty around tax policy in general and the Section 179 depreciation dynamic particularly. I think if you look at the exceptionally strong finish we saw in North America in Dental equipment, particularly around imaging, it's hard not to attribute some of that to the uncertainty around the tax situation. And I think we saw a nice pickup, particularly in the U.S. It looked more like a sprint to the finish as opposed to anything we're going to call structural at this point in some of the industrial businesses. Again, we mentioned Fluke going positive in the fourth quarter. PID was quite good. So I think if you look at Life Sciences & Diagnostics, for example, I think that second half core growth of 3%, probably a little bit more indicative of what we we're looking at going forward, pretty much in line with that 2% to 5% guide we gave you in New York. I think Dental, again, we'd say maybe it's 1 point of a core that we'd adjust downward to try to look at the run rates given what we saw here in North America. So again, I think we're pleased with the finish. We wouldn't -- but we think it's premature to try to cast that strength too far at this point given what we have seen.

And Scott, the other dynamic we have in the first quarter, we have one less business day. And it probably doesn't impact much the 60% of the business that's equipment and instruments, but as we look back, it definitely impacts the 40% that's consumable. And that alone probably impacts the first quarter by 0.5 point to 1 point.

Sure. Yes. No, that's helpful. Just as a follow-up, guys, I mean, we've seen a real pickup in China in medical spend, I think, consistently across most of the companies that we cover, and what's your experience here? I mean the sustainability. I mean there was a history in some of these markets that the government would have big spend cycles for a quarter or 2 and then not spend for another couple quarters. I mean is there something this time around that might lead us to believe that this is more of a sustainably higher level of spend that is a new trend given government initiatives? I mean how do your guys over there thinking about that?

Scott, I was in China 2 weeks ago, and we spent a fair bit of time on this subject. I think it's interesting if you just look at our own trends through the course of last year, we really saw quite the bifurcation between our industrial businesses and our healthcare businesses, both LS&D and Dental. We were basically up 20% for the full year, and we saw that strength throughout the year on the healthcare side of the portfolio. We were down nearly double digit the first half on the industrial side, and our improved overall numbers in China were a function of industrial basically getting to a flat level in the second half. I think when we look at what's happened in Life Sciences & Diagnostics, we are clearly the beneficiary of a multi-year buildout with respect to the healthcare delivery, particularly in the West but also increased utilization. And I think that will continue. That program clearly stood up when others didn't during the government transition here of late. I think on the Life Science side, we're clearly benefiting as others are from the government's effort to build out an indigenous research and development base. And I'd say that the dental market is still in its infancy, and our own execution there has gotten quite good the last couple of years, but it was an area where we had clearly underinvested and thus, underperformed. I think we see that as part of a long-term trend just given the demographics in China. So our sense is that this is not a quarter or 2, but healthcare's important for a whole host of different reasons over there, and we're well positioned. I think on the industrial side, what our folks were pointing to was, again, stability, some sequential strengthening but probably a point of view that things get better through the course of the year as we have more certainty as to who's in some of the lower-level jobs as the new regime takes shape. Once those decisions are made, we'll see hopefully an initiation of more spending than we've seen. Clearly, in infrastructure, we're keen to see some of that I think given some of the recent headlines around the environment. We'd be well positioned if that were an area where we saw increased interest both on the -- obviously on the water side. So I think our view on China for '13 is good. Again, longer-term, I just don't see these healthcare trends that we're seeing in our own numbers, Scott, tailing off. We just don't.

We'll go next to Jon Wood, Jefferies. Jon Davis Wood - Jefferies & Company, Inc., Research Division: So Beckman Diagnostics, like to touch on that. Looks like that business, actually above market for the first time in quite some time in the fourth quarter. You spoke to some of the high-growth market trends, but can you speak to the developed world, what you're seeing in that business, particularly in the U.S.? And then just comment, why is a low single-digit number still relevant vis-à-vis that fourth quarter trend?

Yes. Well, I think, Jon, the outlook, as you suggest, for this year is still low single digit as opposed to mid-single. We were at low singles through the first 3 quarters and really thought that's where we would be in the fourth quarter. I would say that clearly from a geographic perspective, the growth we're seeing at Beckman is really a function of, if you will, stability in the West with strength in the high-growth markets. I think we still have work ahead of us as we pay off some of the inheritance tax here in the U.S., again encouraged by retention and win rates in that regard, but that's a multi-year effort to get what is fundamentally a business where the consumables drive the growth, and that's a function of the installed base. It's just going to take us a while to do that, though, again, we were very encouraged by the fourth quarter with respect to the AU, the new AU series. I think with respect to Europe, I don't think we're really expecting the European market to contribute to growth but stability there even if it's a low single-digit grind down. If we're executing better, as I think we will in 2013, that's not as much of a drag on us as it has been the last couple of years. So we -- maybe we're conservative with respect to what we're capable of delivering in this market in the West, but I think at least here in '13, the general mix will be similar to what we've seen. We can do better. Obviously, we'd love to do that but really see that mid-single-digit growth more in '14 than this year. Jon Davis Wood - Jefferies & Company, Inc., Research Division: Got it. That's good color. I know you're going to refrain from kind of committing on the FDA front, but anything in your correspondence with them that would suggest kind of that troponin submission is further out than we may think? Or has the feedback from that organization been just again procedural at this point? I guess I'm looking for any color you're willing to share on where we are on the troponin situation in the U.S.

Jon, well, I appreciate the way you frame that because as you know, our practice has been to, I think, respect the sanctity of the dialogue with the agency and not be too public with the details. I would characterize the conversation as constructive, productive and ongoing. So we've, I think, publicly tried to avoid being too specific about where this conversation takes us and the time frame in which we get to final resolution. I think we continue to be optimistic that we will have that product on the market in the future. Again, it's tough to put a finger on the calendar as to exactly when, but we're no less convinced that, that will happen in time as we work through the topic with the agency. Again, I would reiterate that while that is an open switch here in the U.S., it continues to be a product in the market in many other places around the world. And with so many of the other improvements that we're making at Beckman in the U.S. that customers can see in terms of quality, in terms of service, other new product introductions, the way our call patterns are set up, there's just so many positive effects from the implementation of DBS that even without the troponin assay in our arsenal today, you're seeing those improvements in retention rates and win rates. So I understand the focus. It's a very fair question. But customers weigh a lot of different things when they're making a decision. And increasingly, many of those other things are in Beckman's favor, and obviously, when troponin is back on the market, that'll just be one more check on our side of the ledger, but we're not there today.

We'll go next to Shannon O'Callaghan with Nomura.

Larry, could you give a little more color on the positive bookings turn at Fluke, I mean, in terms of geography or end market or any other color?

Yes, I would say that really what we saw, Shannon, probably more than anything was a little bit better performance here in the U.S. I think Europe continues to be a bit of a struggle for us. I think the high-growth markets, again, broadly speaking, have continued to be really the highlight for us at Fluke. We got a little bit of a benefit, I think, as we wound down the year, as we saw some of the inventory adjustments in China really come to a close. But we're not expecting, as you know, a big pop back in T&M. Generally, Fluke will be an important part of that, but we like to think that T&M is up in line with the corporation in '13, and I think Fluke will be an important part of that on the instrument side to be sure.

Okay. And then in Motion, you said the bookings there turned positive, I think. I don't know if it was for all of Motion or just Kollmorgen. Why do you expect that -- the core revenue growth to still be negative in the first half of '13?

We have some tough one-off comparisons there in the Motion businesses, Shannon, and again, I think given some of the underlying demand trends that we see, I think it's going to be sluggish there through the first half where we have vertical exposure, particularly in TEK and certainly in some of the renewables. We had a very tough 2012, but we still had some business that will create a little bit of a year-on-year comparison challenge for us here in the first half as well. But hopefully, we're -- clearly, with the guide that we gave you last month, we think Industrial TEK will really be the -- probably in the 5 hole relative to performance on the core side in '13, unfortunately in part or in large part because of what we'll see at Motion. The obvious contrast there is Product ID, which finished strongly. I think it's really going to be one of our outperformers here in 2013.

Okay. So no underlying real change in the trend in Motion then?

I don't think so. I think in terms of the industrial capital equipment markets that we serve, they have been challenging. They've been challenging here to a degree certainly in Europe and in China. I think that continues here for a couple of quarters as we see it.

We'll go next to Jeff Sprague, Vertical Research Partners.

Larry, I was wondering if you could address deals a little bit, and really the essence of my question is just the environment and valuations. Obviously, the stock market is maybe frothy. Maybe it's not, but we've been on a nice run. So it sounds like you see things in the pipeline, but how do you balance that against valuations and the ability to kind of get things done on reasonable terms?

Jeff, I think we are optimistic about getting things done in 2013. I think that's a function of the pipeline to be sure, and it's a pipeline, again, rarely dominated by public companies. I don't want to suggest that public company valuations are irrelevant to us, and I'm hopeful that we do some public company deals this year. But a fair bit of what we do is often on the private side, be it with families or independent owners and at times, PE, but PE's really not a big source for us, let alone a real competitor. I think one of the dynamics that really works to our favor is our breadth of scope and where we would like to build out. Clearly, in all 5 of our segments, we've got areas where we clearly would like to put capital to work. So when certain segments might be bid up, our discipline stays intact. We'll move into some other areas and be a bit more active there. Through a cycle, I think you see a pretty good -- you've seen a pretty good distribution of the deployment of capital. So I think in terms of how we work through that, ultimately the backstop is the discipline that I think we've demonstrated over a long period of time, strong focus obviously on the strategic quality of the business, operationally our ability to add value. But when the math doesn't work and we can't generate positive returns, cash-on-cash returns for our shareholders, I think Dan and I are very comfortable letting things go. I think it's as simple as that.

Can you give us a sense, if you have the numbers, even roughly? Maybe Dan has them. $1.8 billion spent on 2012 on 14 deals, kind of the aggregate valuation on that basket and how it stacked up [ph] relative to history?

It's probably in the zone of -- X-Rite would be the biggest 1, and that was sub 10x EBITDA. IRIS was -- so probably overall, I'd say about 10x EBITDA, maybe 10 to 11. I would say in that $1.8 billion of spend, and it's kind of the benefit of doing bolt-ons and that's really -- and adjacency deals, a lot of margin expansion opportunity across that revenue base. So I think that's a 10, 11x that we can get to sort of 8x without any revenue growth, and that's obviously the benefit of when we're doing these kind of bolt-on and adjacency-type deals. And if you look at -- so I feel pretty good about the valuation overall. I didn't feel like we really had to stretch for any of those deals and all sort of in that zone when we think we'll exceed a 10% return within 3 years.

Right. And just a follow-up on healthcare, Larry, you hit a lot of it with your comments a moment ago on Beckman. But just overall, as the calendar rolled over, is there a measurable sense of different momentum, whether it's a positive because of the alleviation of the uncertainty of who's President or the negative because of uncertainty about device tax? Is there -- just across the whole fleet, if you will, in the U.S., anything to discern here early on?

No. Again, I think what we saw in terms of the acceleration at year end perhaps is more of a bit of uncertainty. Some of which has been addressed clearly on the tax side, but I don't think anyone is really taking too much for granted here. Clearly, the medical device excise tax is something that we're going to have to work through as are others, not only in Diagnostics but also in Dental. Really doesn't impact the Life Science space, the research space directly. So I think it's hard to discern anything that's material or structural that's different, particularly here in D.C. I think folks know that while there was some clarity in terms of who's going to be President and in the short term, clarity around fiscal policy, in many respects, that can was kicked down the road, and there are going to be open questions still to be addressed through the course of the year. But I think by and large, where we play in terms of research tools, our new product cycles position us well to get our own fair share of the spend there. Clearly on the Dental side, an improved stock market. Just a little bit of a better tone in the U.S. should help patient traffic. We can execute well there. And I think on the Diagnostics side, again, given our starting point at Beckman, we can make a good bit of our own luck there. And if you look at Radiometer and Leica Bio as an indicator of that potential, while we've never said we'll be a high single, low double-digit grower at Beckman Dx, we do think in the short-term, we can offset any headwinds that might be out there.

[Operator Instructions] We'll go next to Steven Winoker with Sanford Bernstein. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Just first question, can you give a little clarity on the 100 basis points of additional SG&A as percentage of revenue this year versus last? Just maybe dive into that, tear it apart?

Steve, I'd have to look at that off-line. I suspect part of that is the full year impact of Beckman. Last year, we only had Beckman for 6 months, and I think if we normalize that, you probably would have seen some SG&A leverage. So I think it's a little apples to oranges given the Beckman full year versus 6 months a year ago. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Yes, that'd be great if we could do that off-line then. I'd like to just make sure on a pro forma basis to understand what's happening on the G&A part. But overall, I mean G&A, you're not -- are you investing globally in any additional initiatives beyond expectation or where you were? Or...

Well, I think the attitude, Steve, is still to be lean and tight from a G&A perspective, but certainly, as we've gotten bigger and the high-growth markets have become more important, we've been reshaping what constitutes, if you will, the Danaher overhead piece, so we have more capability on the ground in places like China from a Danaher perspective. Jon Clark, as you know, one of our group executives, member of the Danaher leadership team, is now in China as the President of Danaher China, really to make sure that we're doing more as Danaher China in that regard. I think similarly, as these platforms have really taken on a critical mass, there are things we're going to be able to do in Life Sciences, in Dental much as we have in Water and in T&M as a platform. Again, we want to keep the G&A lean, but I think we're also going to be putting and trying to achieve more strategically in terms of harvesting synergies at a platform level. Again, we want to avoid bureaucracy. We want to avoid undue costs, but I think these regional and platform level efforts have really paid some early dividends for us. And that's probably what's most top of mind for me and Dan as we look at the -- not only the level of the G&A spend but the nature and shape of it. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then just on the growth side, a little more specifically, where are you in terms of the regulatory approvals for Ballast Water and on the IMO and Coast Guard? How are you thinking about that product on the approval path [indiscernible]?

Well, a little like other regulatory approvals, the -- while the strategic intent and the spend level is unchanged, the time frame there relative to our certifications is a bit more unpredictable, Steve. But clearly, the internal testing that we've talked about at Trojan is underway. I think we're hopeful that some of that, the validation work in essence is completed here in the first half of 2013. We did get our first installation late last year. Pleased with that. But it's been a bit unpredictable, which is why we really haven't laid in a lot in terms of '13 contribution at Trojan from Ballast Water.

Next, Ross Muken with ISI Group.

Can you talk about maybe some of the new product momentum you're seeing in some of the key businesses, whether it's on the Life Science side or also in the T&M business?

Ross, I'm sorry, I didn't catch the first part of your question. Could you please...

Sorry, new product momentum, new launches, sort of key things to look out for over the course of the year in terms of contributing to growth sort of outside, just the macro.

Yes. I think we, again, are clearly in Life Sciences, particularly in a very strong new product position. I think at SCIEX with the 4500, the 6500 you're seeing strong traction, that's something to watch. That's not a 1-quarter dynamic. I think similarly at Leica Micro, we're in a good place. The SP8 will continue to be an important growth driver for us as we ramp there, and that's really the way I would think about Life Sciences. Again, Diagnostics, as you well know, is a little bit tougher to turn. But I think as we ramp the AU series, the new clinical chem family at Beckman, we're going to be in particularly good shape. And as you go to the shows this spring, ASMS and the like, I think you're going to see SCIEX, Leica, Beckman all continue to launch really a steady bucket of new product introductions. I think in T&M, again, I think at Fluke, particularly in thermography, we're encouraged by the early response to this new visual thermometer. There are other products that we plan to get out in '13, really in the back of the -- some of the technology that was brought in last year. I think in T&M, particularly on the scope side, we're in a good place. We've talked about some of the awards that we've seen with the launches that are still due to ramp through the course of 2012, and there's more to come in that regard. Clearly, innovation is important in both of those segments. We'll continue to invest in R&D, spend a lot of time deploying the DBS tools to accelerate those product launches and drive as much commercialization success as we can.

And -- great. Maybe just one other quick one. So I'm looking at sort of indication on the stock this morning. It's off a couple bucks. I'm looking at my inbox. People are obviously talking about sort of the guidance commentary, and I think in general, it's very consistent with what you talked about at JPMorgan not long ago. I mean, as we think about sort of the progression over the year, really, is it just sort of we're early in the year, sort of a function of we're just starting to maybe turn a bit on the cycle, and we're not sure where we are. I mean, what are you looking for on either the macro front or just within the business in terms of getting more comfortable and maybe a more constructive outlook in terms of core growth in the business for the year?

Ross, again, I think you're spot on. We're trying this morning not to say anything that is fundamentally different than what we said in New York in mid-December or what we said at the JPMorgan Conference earlier this month. I think we're pleased certainly with a stronger finish to the year. I think we're acknowledging some of that might have been a pull-forward from 2013. But I think all things being equal, we think we're looking at a challenged growth environment in the West, one that's getting better and the one could continue to improve sequentially through the course of the year. But it's not going to be a high-growth market story for us as it will be for most companies. In terms of increasing our guidance in any form, I think 6 weeks on is just, again, premature. But we'll certainly, as is our practice, literally look at everything, how China's ramping not only in terms of what we're shipping but order books, other leading indicators, looking at POS and T&M, particularly on the instrument side, will be another important marker for us. But I think that the way we're going to operate in this environment is really no different than way we've operated before in terms of recognizing the macro reality and the challenges that are out there and trying to make as much of our own luck as we possibly can. But again, there's no change here from what we said earlier this month, let alone the middle of last month.

And I think we're pleased with the restructuring we got done here in the fourth quarter as Larry alluded to, over $120 million. I think we're going to track well to those savings here in 2013. And one of the challenges that we had was the Test & Measurement segment margins, particularly in the second half, which were down like 300 basis points year-on-year. That's going to get better here, and both because growth is getting a little better there, but also because that segment had a disproportionate amount of the restructuring here. I think we're feeling better about how T&M is shaping up here early in the year.

We'll go next to Julian Mitchell, Crédit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: Yes. I guess just firstly, when you think about the gross margin, you've had 3 years in a row now where it's been above kind of 50%. It's up the last couple of years, and you've done a bunch of restructuring. So when you think sort of longer-term -- I mean do you think that kind of mid-50s run rate is achievable, obviously, depending on timing of and size of deals?

Julian, I think we do have gross margin expansion potential here. As Dan just highlighted a moment ago, clearly, one of our higher gross margin businesses, certainly one of our higher BCM businesses, T&M, had a tough 2012, and they're back on a more normal trajectory. That's accretive in that regard. Clearly, as we drive the installed bases of these new products in LS&D, we get good gross margin sales in the short term, but overtime, as those -- as that installed base grows and the higher-margin consumables course through those instruments, that helps us as well. You're right. We've done a lot of restructuring the last few years. We don't have a lot teed up here in the next 90 to 120 days, but there's always structural costs still to come as well. So I wouldn't put a target out there because as you alluded to, the next acquisition may come in, in a way that helps or hurts the gross margin temporarily. But I don't think we've, in any way, pinned the gross margin number on the ceiling here just yet. Julian Mitchell - Crédit Suisse AG, Research Division: And then just in terms of your own plans around R&D and CapEx, I mean R&D to sales is sort of flattish at about 6% in the quarter in the last couple of years. Is that a good run rate going forward? And then on CapEx, that was up by about 5%, I think, in Q4. How are you feeling about your CapEx plans for the year ahead?

Julian, we certainly focus on the R&D figure more so than we do the CapEx. I think CapEx is probably going to be in, what, $550-ish million range this year, just to give you a number there. I don't think, again, from an R&D perspective when you look at where we finished and where we're likely to be 6, 6.5 in that band, that we're really managing R&D with those ratios foremost in our minds. I think what we're trying to do is make sure that strategically we know what we need to be doing to drive growth, investing in both technology and new product development and then positioning ourselves to fund those programs within businesses across the portfolio that represent the best opportunities for us. And if that means we ought to spend a little bit more or we could spend a little bit less, we'll do that. I don't think we're of the school that you really want to just manage R&D through that ratio because you can end up, I think, spending money that you don't necessarily need. But clearly, part of what we did with the restructuring, as we alluded to through the course of last year, was to set ourselves up this year to increase any growth funding, be it R&D, be it on the sales and marketing side as well perhaps, that might be warranted as opportunities come forward.

We'll have our last question from Deane Dray, Citi Research.

We're coming down to the wire on Apex. Can you just remind us the after-tax proceeds, the gain and then the use of the proceeds? I know we've -- you've baked in some buybacks already, but just those targets for 2013.

Sure, Deane. The -- our half of the JV, we expect gross proceeds of about $800 million, after-tax proceeds of a little bit over, I think, $650 million. We'll report a gain of about $0.19 a share here in the first quarter. Given we've -- we purchased about 12.5 million shares of stock here in the second half of last year in the kind of low 50s, I think our expectation is the lion's share is close to targeted towards May here in '13.

Great. And then, Larry, in terms of the Water side of Danaher, the 2 businesses that I'd like to touch on, 1 is on ChemTreat, very quiet success story, 10 quarters of double digits. Just remind us what the strategy there has been because a lot of people thought this is a chemicals business, but it's more of a solutions business. But you've grown this gain share over this time period and just you're targeting specific end markets that are more attractive. That's first question. And then second one on Trojan, some pushouts in the third quarter, didn't sound like that repeated in the fourth quarter, just give us some update on that, too, please.

Sure. You bet. Well, I think that at ChemTreat, the story in many respects is a simple one. This is a business, largely a domestic business, that has just done over time before we were involved, but clearly, over the last 10 quarters, an exceptional job of taking very good care of their customers. You're right. They transact typically through the supply of water treatment chemicals, but what they -- what customers really buy though is the expertise, the service and the quality of the support that their local ChemTreat team provide. I think being in a position where we've been able to build that team over time continue to enhance the overall service and quality levels of the business has really been just a daily execution story, much more so than any grand strategy. And again, our hats are off to the team at ChemTreat. They've just been outstanding partners with us, and we're really proud of the results they've delivered. Trojan's been another very strong story for us, going through I think a couple of tough quarters here to be sure as we've seen some of the bigger projects roll off around the world and at the municipal market, particularly around some of the bigger-ticket capital programs, tighten up here. But I think as we look forward at Trojan, continue to be convinced around the UV disinfection opportunity. Trojan's position, I think you know, Deane, better than anybody, the Ballast Water opportunity is out there. I think it's going to come, just a matter of getting the timing down. So there's some uncertainty in the short term, but I think longer term, again, that's going to be a meaningful opportunity for Trojan on top of what they do today for their municipal and their industrial customers.

And at this time, I'll turn the conference back over to Mr. McGrew to offer any additional or closing remarks.

Thanks for joining us, everybody. Dan and I are around here in the morning for follow-ups.

That concludes today's conference. Thank you for your participation.