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Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

Danaher's income tax expense represents the tax liability for the current year, the tax benefit or expense for the net change in deferred tax liabilities and assets during the year, as well as reserves for unrecognized tax benefits and return to provision adjustments. 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 Danaher's tax return in future years for which the tax benefit has already been reflected on Danaher's Consolidated Statements of Earnings. Danaher 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. Deferred tax liabilities generally represent items that have already been taken as a deduction on Danaher's tax return but have not yet been recognized as an expense in Danaher's Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income tax expense in the period that includes the enactment date. Danaher provides for unrecognized tax benefits when, based upon the technical merits, it is "more likely than not" that an uncertain tax position will not be sustained upon examination. Judgment is required in evaluating tax positions and determining income tax provisions. Danaher re-evaluates the technical merits of its tax positions and may recognize an uncertain tax benefit in certain circumstances, including when: (1) a tax audit is completed; (2) applicable tax laws change, including a tax case ruling or legislative guidance; or (3) the applicable statute of limitations expires. Danaher recognizes potential accrued interest and penalties associated with unrecognized tax positions in income tax expense.

Source: Danaher Corp., Annual Report


Income Tax Expense (Benefit)

Danaher Corp., income tax expense (benefit), continuing operations

USD $ in thousands

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12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Federal U.S. hidden hidden hidden hidden hidden
Non-U.S. hidden hidden hidden hidden hidden
State and local hidden hidden hidden hidden hidden
Current hidden hidden hidden hidden hidden
Federal U.S. hidden hidden hidden hidden hidden
Non-U.S. hidden hidden hidden hidden hidden
State and local hidden hidden hidden hidden hidden
Deferred hidden hidden hidden hidden hidden
Income tax provision hidden hidden hidden hidden hidden

Source: Based on data from Danaher Corp. Annual Reports

Item Description The company
Current The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. Danaher Corp.'s current declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Deferred The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. Danaher Corp.'s deferred declined from 2015 to 2016 and from 2016 to 2017.
Income tax provision The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. Danaher Corp.'s income tax provision declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Effective Income Tax Rate (EITR)

Danaher Corp., effective income tax rate (EITR) reconciliation

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Statutory federal income tax rate hidden% hidden% hidden% hidden% hidden%
State income taxes, net of federal income tax benefit hidden% hidden% hidden% hidden% hidden%
Foreign income taxed at lower rate than U.S. statutory rate hidden% hidden% hidden% hidden% hidden%
Resolution and expiration of statutes of limitation of uncertain tax positions hidden% hidden% hidden% hidden% hidden%
Permanent foreign exchange losses hidden% hidden% hidden% hidden% hidden%
Acquisition costs hidden% hidden% hidden% hidden% hidden%
Research credits, uncertain tax positions and other hidden% hidden% hidden% hidden% hidden%
Revaluation of U.S. deferred income taxes hidden% hidden% hidden% hidden% hidden%
TCJA, Transition Tax hidden% hidden% hidden% hidden% hidden%
Increase (decrease) in tax rate hidden% hidden% hidden% hidden% hidden%
Effective income tax rate hidden% hidden% hidden% hidden% hidden%

Source: Based on data from Danaher Corp. Annual Reports

Item Description The company
Effective income tax rate A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. Danaher Corp.'s effective income tax rate declined from 2015 to 2016 and from 2016 to 2017.

Components of Deferred Tax Assets and Liabilities

Danaher Corp., components of deferred tax assets and liabilities

USD $ in thousands

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Allowance for doubtful accounts hidden hidden hidden hidden hidden
Inventories hidden hidden hidden hidden hidden
Pension and postretirement benefits hidden hidden hidden hidden hidden
Environmental and regulatory compliance hidden hidden hidden hidden hidden
Other accruals and prepayments hidden hidden hidden hidden hidden
Stock-based compensation expense hidden hidden hidden hidden hidden
Tax credit and loss carryforwards hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Deferred tax assets, before valuation allowances hidden hidden hidden hidden hidden
Valuation allowances hidden hidden hidden hidden hidden
Deferred tax assets hidden hidden hidden hidden hidden
Property, plant and equipment hidden hidden hidden hidden hidden
Insurance, including self-insurance hidden hidden hidden hidden hidden
Basis difference in LYONs hidden hidden hidden hidden hidden
Goodwill and other intangibles hidden hidden hidden hidden hidden
Unrealized gains on marketable securities hidden hidden hidden hidden hidden
Deferred tax liabilities hidden hidden hidden hidden hidden
Net deferred tax asset (liability) hidden hidden hidden hidden hidden

Source: Based on data from Danaher Corp. Annual Reports

Item Description The company
Deferred tax assets, before valuation allowances The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. Danaher Corp.'s deferred tax assets, before valuation allowances declined from 2015 to 2016 and from 2016 to 2017.
Deferred tax assets The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Danaher Corp.'s deferred tax assets declined from 2015 to 2016 and from 2016 to 2017.
Net deferred tax asset (liability) For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. Danaher Corp.'s net deferred tax asset (liability) increased from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Deferred Taxes

Danaher Corp., adjustments to financial data

USD $ in thousands

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax liabilities, net hidden hidden hidden hidden hidden
Total liabilities (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Danaher Stockholders' Equity
Total Danaher stockholders' equity (as reported) hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden
Total Danaher stockholders' equity (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Earnings
Net earnings (as reported) hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Net earnings (adjusted) hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Danaher Corp., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net Profit Margin
Reported net profit margin hidden% hidden% hidden% hidden% hidden%
Adjusted net profit margin hidden% hidden% hidden% hidden% hidden%
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden% hidden% hidden% hidden% hidden%
Adjusted ROE hidden% hidden% hidden% hidden% hidden%
Return on Assets (ROA)
Reported ROA hidden% hidden% hidden% hidden% hidden%
Adjusted ROA hidden% hidden% hidden% hidden% hidden%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Danaher Corp.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Danaher Corp.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Danaher Corp.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Danaher Corp.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Net Profit Margin

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Sales (USD $ in thousands) hidden hidden hidden hidden hidden
Net profit margin1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted net profit margin2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 Net profit margin = 100 × Net earnings ÷ Sales
= 100 × hidden ÷ hidden = hidden%

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Sales
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Danaher Corp.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Financial Leverage

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Adjusted total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden

2017 Calculations

1 Financial leverage = Total assets ÷ Total Danaher stockholders' equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Total assets ÷ Adjusted total Danaher stockholders' equity
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Danaher Corp.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROE = 100 × Net earnings ÷ Total Danaher stockholders' equity
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted total Danaher stockholders' equity
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Danaher Corp.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROA = 100 × Adjusted net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Danaher Corp.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.